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Sterling hits 26-year high against dollar Peter
Garnham Sterling hit a 26-year high against the dollar on Tuesday as expectations that the Bank of England would move to cut UK interest rates were dented. Analysts said comments from Kate Barker, a member of the central bank’s monetary policy committee, were responsible for the move. On a visit to Guernsey on Monday Ms Barker said she felt the present situation was a slowdown in the UK economy, rather than anything more serious. Howard Archer at Global Insight said given that Ms Barker was as a swing voter on the nine-strong committee, her comments were particularly significant when trying to ascertain the prospects for an early UK interest rate cut.
“This suggests that Ms Barker believes that there is not yet a compelling case for the bank to take pre-emptive action to try and reduce the risk that the credit crunch could trigger a sharp downturn in growth,” he said. “This reinforces our view that there is not nearly enough evidence so far of a significant economic slowdown for most members of the monetary policy committee to vote for an interest rate cut as soon as November, or even this year.” The pound rose 0.1 per cent to $2.0660 against the dollar, surpassing the previous high of $2.0655 it hit in July, gained 0.3 per cent to £0.6967 against the euro and climbed 0.2 per cent to Y237.15 against the yen. Meanwhile, the dollar edged 0.2 per cent higher against the euro to $1.4395, pulling back from the record low of $1.4438 it hit on Monday. David Woo at Barclays Capital said the slight appreciation in the dollar followed press reports arguing the Federal Reserve might choose to keep interest rates on hold at its meeting on Wednesday and that a 50 basis point cut was extremely unlikely. “While it is unclear whether these press views reflect information from sources within the Federal Reserve, it is consistent with our view that a 50 basis point cut is quite unlikely,” he said. “But we think a no-change decision is equally improbable.” Mr Woo said he believed risks to the US financial and housing markets would keep the Fed in an easing mode under which it was likely to continue to stress the downside risks to growth over the upside risks to inflation. “So we do not expect the recent appreciation in the dollar to be sustained following the Fed rate decision,” he said. The dollar also edged 0.1 per cent higher to Y114.80 against the yen and climbed 0.1 per cent to SFr1.1660 against the Swiss franc. Meanwhile commodity linked currencies fell back following strong gains on Monday as oil and gold prices retreated from record levels. The Canadian dollar, which struck a 47-year high on Monday, eased 0.3 per cent to C$0.9560 against the dollar. The Australian dollar, which hit a 23-year high on Monday, fell 0.3 per cent to $0.9190. Elsewhere, the Swedish krona rose 0.4 per cent to SKr9.1697 against the euro and climbed 0.3 per cent to SKr6.3700 against the dollar after the Riksbank, the Swedish central bank, raised interest rates by 25 basis-points to 4 per cent. The accompanying monetary policy report suggested that interest rates were likely to continue to rise next year, peaking at between 4.25 and 4.5 per cent. “The projected path is slightly higher than that published back in June and therefore a bit more hawkish than might have been anticipated,” said Ben May at Capital Economics. “Overall, then, a fairly strong statement of intent from the Riksbank, which should give the Swedish krona some near-term support.”
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