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Strong pound to breach 2 dollars { December 8 2004 } Original Source Link: (May no longer be active)
http://www.guardian.co.uk/usa/story/0,12271,1368845,00.htmlhttp://www.guardian.co.uk/usa/story/0,12271,1368845,00.html
Strong pound threatens to breach $2
Larry Elliott, economics editor
Wednesday December 8, 2004
The Guardian
The pound was last night threatening to rise through the $2-level for the first time in a dozen years after fresh selling pushed the US currency to record lows against the euro on foreign exchange markets.
Amid expressions of growing concern from the European Central Bank and EU finance ministers, renewed dumping of the greenback helped nudge the pound above $1.95 for the first time since September 1992.
Profit-taking later saw it slip back to $1.9420.
Dealers said the obvious reluctance of the Bank of England to step in to weaken the pound made sterling an attractive destination for investors keen to rid themselves of dollars.
A higher pound against the dollar makes holidays to the US cheaper but makes life tougher for British firms seeking to export goods and services to the world's biggest market.
Kamal Sharma, currency strategist at Dresdner Kleinwort Wasserstein, said: "The Bank doesn't seem to think sterling's strength is impacting Britain's trade balance and is not threatening to intervene."
Other analysts expressed doubts about how much further sterling could rise. "I've just seen Norman Lamont on TV saying the pound may rise above $2. For me, that's the ultimate sell signal," said one.
Mr Lamont was chancellor of the exchequer at the time of Britain's humiliating exit from the exchange rate mechanism, the last time the pound was worth more than $2.
In a joint statement, European finance ministers meeting in Brussels on Monday said that "excessive volatility and disorderly movements" in exchange rates were hurting growth.
These comments echoed remarks made before the G7 intervened in currency markets four years ago to halt the dollar's rise, and were endorsed by Jean-Claude Trichet, president of the ECB.
The communique also called on countries to reduce global imbalances, which the Belgian finance minister, Didier Reynders, said was a message intended for the US. Analysts were sceptical about the chances of any intervention working, particularly with the US unlikely to participate.
"I see further gradual dollar weakness," said Gerard Lyons, chief economist at Standard Chartered Bank.
"Intervention only works if it is in the interests of all the key players. The US is trying to rebalance its economy. Asia can cope with that; Europe can't."
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