Sterling back at its Black Wednesday level

The pound passed a key psychological barrier yesterday when it rose above its minimum rate in the European exchange rate mechanism. For the first time since "Black Wednesday" in September 1992 it climbed above the DM2.7780 floor.

The breakthrough, which is sure to worry British exporters, was described by analysts in the financial markets as a side-effect of the dollar's strength. It reached its highest level for more than four years, thanks to the strength of the American economy and the prospect of further increases in interest rates across the Atlantic.

But comments by Robin Cook, the shadow foreign secretary, indicating that a Labour government will be in no hurry to take Britain into the single currency, also helped underpin the pound.

Mr Cook's announcement that Britain was unlikely to join during the course of the next parliament meant sterling once again benefited from its status as a safe haven from EMU.

The weekend meeting of European finance ministers in Noordwijk was seen as making it more likely that the single currency will start on time but with a loose interpretation of whether or not countries satisfy the economic criteria.

A newly rising exchange rate will help take the pressure off Kenneth Clarke when he is advised by the Governor of the Bank of England, Eddie George, at Thursday's meeting, to increase base rates. Figures since their last meeting have pointed to a buoyant economy. In the Chancellor's own words, "Britain is booming."

But most City economists think it will fall to the next Chancellor - and they believe it will be Gordon Brown - to raise rates soon after the election. This prospect is helping to underpin the strong pound.

In an active day's trading, gilts also soared on the tail of other government bond markets. And shares closed higher too, the FTSE 100 index ending up more than 35 points at 4,271.7.

"The dollar is dominant, but it was a nice psychological moment for sterling yesterday," said Alison Cottrell at Paine Webber. She, like other analysts, predicted the pound's new show of strength would continue.

Gerard Lyons, chief economist at DKB in London, said: "The dollar is the key. The economic fundamentals are better in the US than either Germany or Japan. The pound has risen on the dollar's coat-tails."

Since the US Federal Reserve raised interest rates by a quarter point at the end of last month there has been fresh evidence of the robust economic outlook. Friday brought figures showing another big increase in employment and rising wage costs.

The currency markets were also reassured by comments from US Treasury Secretary Robert Rubin, visiting Japan at the end of last week. He indicated that the US administration would not rely on a weak dollar to correct the country's trade deficit with Japan.

The dollar passed the 125 mark for the first time since February 1993. Analysts see 130 as the next target.

It also passed DM1.71, the highest level for three weeks, before ending just below that level after profit-taking in European trading.

However, the weekend's single currency developments also favoured the pound against the mark. The German currency was weak across the board against other EU currencies.

Along with Chancellor Helmut Kohl's decision to stand for re-election, the Noordwijk meeting persuaded investors that the political impetus towards EMU had been renewed.

This suggests that there could be a greater degree of flexibility in deciding which countries will qualify - or in other words, more fudging of the Maastricht criteria. Eric Fishwick at Nikko Europe said: "The markets have scented a softening of tone on the part of Germany."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones