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Wednesday, March 13, 2013

Pound drops to new two-and-a-half year low

Sterling fell below $1.49 on Monday morning, as a strong dollar and fears over easing continue to hammer the British currency.


The pound dropped to its lowest in 32 months against a fortified dollar on Monday to $1.4871 before settling at around $1.49 in later trading.

Kathleen Brooks, research director at currency trader Forex.com, said that while the dollar's "new found strength" was a key factor, the continued slide of the pound also betrayed traders' nerves that the Bank of England may be on the brink of ramping up its asset purchase programme.

"While the Bank of England did not increase quantitative easing on Thursday, we think it's waiting in the wings," she said, adding that traders are expecting the minutes of the Bank's Monetary Policy Committee, which will be published on March 20, to show the decision "came down to the wire, maybe by just one vote.

"Much better-than-expected US jobs data released on Friday, showing unemployment hit a four-year low, reinforced an already-rising dollar amid a wave of positive data from the world's biggest economy last week.

The overwhelmingly positive figures also widened the chasm between the economies on either side of the Atlantic, with Britain teetering on the edge of a triple-dip recession and looser monetary policy while the US Federal Reserve could be close to curtailing its asset purchase programme as it approaches its target level of 6.5pc unemployment.

Although the pound bounced back from below $1.50 after the Bank held interest rates and quantitative easing at the same levels, it has fallen again amid growing speculation that future meetings could yield more stimulus after minutes from February's Monetary Policy Committee meeting revealed that Mervyn King, Bank governor, voted in favour of ramping up QE.

Ms Brooks warned the pound would likely continue its slide and could sink as low as $1.45 within weeks, citing "a lot of momentum on the down side" and data from the Commodity Futures Trading Commission showing an increase in bets against the pound by speculators. The pound also lost ground against the euro.

The euro was up 0.3pc against sterling at 87.34 pence, though some said the euro's gains are likely to be curtailed by lingering concerns about Italy. Meanwhile, European markets edged away from four-and-a-half year highs on Monday amid jitters over Italy's credit rating downgrade and patchy economic data from China.

telegraph.co.uk

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