US fears push pound to high

FEARS about the American economy sent sterling to a two-and-a-half year high against the dollar today as investors moved their money out of the US. The pound hit a peak of $1.5895, up three quarters of a cent, before dropping back to $1.5878.

The run on the dollar has shown no sign of stopping since the US Federal Reserve decided the best medicine for the ailing US economy was a half point rate cut.

Hopes that this would prompt similar action in Britain and continental Europe were dashed when the central banks left rates unchanged. This means interest on the pound is 275 basis points higher than interest on the dollar.

The dollar also weakened against the euro and the Swiss franc as investors sought better returns elsewhere. By late afternoon e1 was worth $1.0120, its highest for three months. Against the yen, the dollar fell to 119.95, its lowest since mid-September.

The rate cut heightened fears that the US economy may take longer to recover than previously thought. Yesterday saw the worst run on US equities for three weeks.