UK pound goes through $2 barrier

[N.O.R.F]

Not a good thing if you live abroad

 

UK pound goes through $2 barrier

 

The pound has moved through the $2 mark for the first time since 1992, as investors bet that interest rates would have to rise further to slow inflation.

Consumer prices rose by 3.1% in March, the Office for National Statistics said. The ONS also said that its retail price inflation rate rose to 4.8%.

 

For the first time, the Bank of England governor has had to write a letter explaining why inflation has climbed.

 

The pound climbed as high as $2.003, though the move was short-lived.

 

The stronger pound has been good news for British visitors to the US, but has made life more difficult for exporters.

 

Moving up

 

The last time the $2-level was breached was just before sterling dropped out of the Exchange Rate Mechanism in September 1992.

 

Analysts are now betting that the Bank of England will raise interest rates when it meets in May in an effort to slow consumer spending and price growth.

 

Borrowing costs have been increased three times since August.

 

The key rate currently stands at 5.25% and is widely expected to go up to 5.5% at the Bank of England's next meeting on 10 May.

 

"A May move is a certainty," said Philip Shaw, economist at Investec.

 

"It opens up a strong possibility of interest rates rising beyond 5.5%," he added.

 

Higher borrowing costs act as a tax on consumers, boosting loan repayment costs, taking money out of their pockets and slowing the rate at which they spend and take on extra financing.

 

Further falls

 

Analysts said that the outlook for sterling will also depend on US economic data due later on Tuesday.

 

David Jones from CMC Markets added the pound's move "has proved to be unsustainable, but with US economic data due later in the session, further dollar downside may be seen in due course".

 

It is not only sterling that is strong at the moment. The euro is at two-year high against the dollar and a record high versus the Japanese yen.

 

Many traders said they were surprised that last weekend's Group of Seven finance ministers meeting in Washington did not make any comments about the weakness of either the dollar or the yen.

 

bbc.co.uk

[Ms DD]

Salaam North

 

It seems a bit unfair that the Bank of England is having to write a letter to Gordon Brown, when the inflationary impetus is coming from the things he has done.

 

But there are a number of factors similar to a decade or more ago.

 

Overheating housing market? Yes

 

Rising inflation? Yes

 

Pound rising to over $2? Yes

 

Rising interest rates? Yes

 

Budgets and trade deficits? Yes

 

But essentially they are all linked, too much Government spending, too much credit, too much demand = rising inflation.

[N.O.R.F]

Salaams Cambarro

 

They always want people to spend then inflation rises then they raise the rates. Its a never ending scenario. They make the conditions right for people to borrow and spend then raise the rates due to 'high inflation'.

 

All the fat cats must be rubbing their hands (again). :rolleyes:

[Ms DD]

This why I am advising family and friends to pay a visit to the exchange rate shop with their pound and return with dollars. One can make mint.

 

How is dirham in relation to Dollar?

[N.O.R.F]

Dirham is weaker against the pound these days but steady against the dollar as its pinned to it.

 

I usually divide my earnings by 7 to see what the pound equiv is. These days i divide by 7.3

[Legend of Zu]

Who said inflation is bad? Stagflation is bad. However, that doesn't mean inflation should not be controlled. Now Interest rates are one part of the many tools used to control inflation in the economy. So don't perish...you will be alrite folks.

 

Dhuc Dhuc, they should only if they are willing to keep it until the pound falls to the point where the difference can cover the cost of exchange rate and some profit. Note some currency speculators have already factored in the potential fall of the pound

 

Cheers

[Paragon]

Northerner, is still rising? I think this means good those intending to travel from London to other countries.

 

What are the chances that it would continue rising?

[Ms DD]

Zu

 

The conversion of pound to dollars is priority for those who make investments in Africa or Amrika.

 

Paragon

It is forecast the £ to peak this week.

[Jamster]

Just send money to Somalia! earlier than expected waan ka faa iideysan.

[-Lily-]

I guess this is good timing for those of us planning a holiday soon, more for your money.

 

But what does this mean domestically? Nothing we will notice I hope, the BBC article I read earlier today doesn't sound promising though: http://news.bbc.co.uk/1/hi/business/6563013.stm