Two-dollar pound just 10 cents away

The pound surged to its highest level against the US dollar for more than a decade today, making that shopping trip to New York even more affordable.

Sterling has gained massively against the dollar in recent months, and smashed through the psychologically important $1.90 today as speculators bet on a further-weakening of the American currency. But the fading greenback, which has caused seismic shifts in global currency markets in recent months, is bringing problems, too, for the UK.

While it should lower the cost of American imports such as Levis and Chrysler Cars and offer cutprice holidays at US destinations, it makes British goods and services more expensive in the hugely important American market. That, in turn, could eventually threaten British jobs.

Today's gains for the pound - up nearly one cent at $1.907, brings sterling tantalisingly within range of the $2 mark, a rarefied level at which it has not traded since the early Seventies. And US policymakers have so far done little to prop up the dollar, which suggests that rates on the other side of the Atlantic are likely to remain low for some months to come.

The pound was helped today by a

slight pick-up in inflation to 1.4 per cent so far this month, strengthening suspicions in the City that further interest rate rises are on the way.

That news is a magnet for international speculators, who are attracted to currencies where interest rates are rising because they get a better return for parking their cash there.

The dollar has sunk against most other major currencies in the last 12 months as the Bush administration hinted that it was moving away from its long-held policy of supporting a strong US currency.

The White House would like to see a weaker dollar improve the country's deteriorating trade balances by making American goods cheaper in foreign markets.

However, profligate American government spending has undermined confidence that the administration is serious about managing the nation's finances.

And in an election year, President Bush will be eager to show he is trying to protect US manufacturing jobs in swing-state battlegrounds.