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

Guru Careers: Account Manager / Membership Manager

£35 - 38k + Benefits & Bonus: Guru Careers: We are seeking an Account Manager ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

Guru Careers: Associate Director / Director of Sound Practices

£60 - 100k: Guru Careers: Our client is looking for an Associate Director of S...

Guru Careers: Tax Manager / Accountant

£35 - £50k DOE: Guru Careers: A Tax Manager / Accountant (ACA / CA / CTA) is n...

Day In a Page

Giants Club: After wholesale butchery of Idi Amin's regime, Uganda’s giants flourish once again

Uganda's giants are flourishing once again

After the wholesale butchery of Idi Amin's regime, elephant populations are finally recovering
The London: After 350 years, the riddle of Britain's exploding fleet is finally solved

After 350 years, the riddle of Britain's exploding fleet is finally solved

Archaeologists will recover a crucial item from the wreck of the London which could help shed more light on what happened in the vessel's final seconds
Airbus has patented a jet that could fly from London to New York in one hour

Airbus has patented a jet that could fly from London to New York in one hour

The invention involves turbojets and ramjets - a type of jet engine - and a rocket motor
10 best sun creams for kids

10 best sun creams for kids

Protect delicate and sensitive skin with products specially formulated for little ones
Tate Sensorium: New exhibition at Tate Britain invites art lovers to taste, smell and hear art

Tate Sensorium

New exhibition at Tate Britain invites art lovers to taste, smell and hear art
Ashes 2015: Nice guy Steven Finn is making up for lost time – and quickly

Nice guy Finn is making up for lost time – and quickly

He was man-of-the-match in the third Test following his recall to the England side
Ashes 2015: Remember Ashton Agar? The No 11 that nearly toppled England

Remember Ashton Agar?

The No 11 that nearly toppled England
Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks