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Wednesday 7 November 2007
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Sterling surges to 14-year high


By Richard Blackden
Last Updated: 1:30am GMT 24/01/2007

Sterling soared to its highest against the dollar in 14 years, moving within a cent of the key $2 level, as currency traders anticipate further interest rate increases from the Bank of England.

A bout of weakness in the dollar had already buoyed the pound last month, but the rally in sterling has accelerated since the Bank of England shocked the City by increasing interest rates this month.

Sterling rose to as high as $1.9916 in early afternoon trading in London, though had drifted back to below $1.99 by the late afternoon. The pound also jumped to its strongest against the euro since 2003.

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The most recent economic data has only underlined impressions that the UK economy is powering ahead. Retail sales in December grew more than expected last month, while a report tomorrow will probably show the economy expanded almost 3pc in the last quarter of 2006.

"Although there is some dollar weakness, this is largely about the strength of sterling," said Ian Stannard, a currency analyst at BNP Paribas. "Sterling is up against the yen and the euro and we expect to see a move up through $2."

Sterling has not been at the $2 level since the UK was forced out of the Exchange Rate Mechanism in 1992. The pound has already put on two cents against the dollar since the Bank unexpectedly raised rates to 5.25pc on January 12.

Foreign-exchange traders will closely scrutinise the minutes from the meeting at which the Bank raised rates, which are due to be released on Wednesday morning.

If the discussions between the Bank's nine policy makers indicate that rates may need to be raised next month, then sterling should get another lift.

"The market is expecting a set of hawkish minutes," said Mr Stannard. "If we do then the sterling will definitely get another boost."

The surge in sterling comes after a spectacular 2006 for the currency in which it emerged as the favourite currency of world central banks and petro-dollar sheikhdoms.

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