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."

News
The clocks go forward an hour at 1am on Sunday 30 March
news
Arts and Entertainment
The Doctor finds himself in a forest version of London in Doctor Who episode 'In the Forest of the Night'
TVReview: Is the Doctor ever going stop frowning? Apparently not.
Sport
footballMatch report: Real fight back to ruin Argentinian's debut
News
Bruce, left, with Cream bandmates Ginger Rogers, centre, and Eric Clapton in 1967
people
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Money
Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
news
News
i100
News
people
Arts and Entertainment
Architect Frank Gehry is regarded by many as the most important architect of the modern era
arts + entsGehry has declared that 98 per cent of modern architecture is "s**t"
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
arts + entsSam Smith’s Mobo triumph is just the latest example of a trend
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker