Pound Sterling Hits 14-Year High vs. Dollar

LONDON -- The U.S. dollar continued its descent on Thursday, falling to its lowest level against the Britishpound in 14 years and also losing value against the euro and Japanese yen.

The pound rose to $1.9562 in morning trading from $1.9462 late Wednesday, marking its strongest showing against the dollar since September 1992, before Britain crashed out of the European Exchange Rate Mechanism.

In 1992, the British government raised base interest rates as high as 15 percent in a futile effort to defend the pound's value against the German mark. After Britain dropped out of the Exchange Rate Mechanism, which was meant to eliminate exchange rate fluctuations in Europe, the pound plummeted to around $1.50 by the end of 1992.

Analysts said the pound, which is benefiting from rising home prices and merger and acquisition activity in Britain, could reach $2 by the end of the year. It last reached the $2 level on Sept. 8, 1992.

The euro, which rose to $1.3202 in morning European trading from $1.3156 in New York late Wednesday, has gained over the past week amid expectations that the European Central Bank will continue to raise interest rates, while the Federal Reserve holds, or eventually cuts, rates.

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The dollar fell to 116.10 Japanese yen from 116.31 yen.

The resumption of the dollar's slide Thursday came after it gained against major currencies the previous day on a report showing that gross domestic product grew at a better-than-expected annual rate of 2.2 percent in the third quarter.

U.S. economic data are being watched closely for pointers on the Fed's interest rate course, and disappointing news recently has dimmed the prospect of higher interest rates in the world's largest economy. Higher interest rates, a weapon against inflation, tend to strengthen a currency by making investments in it more attractive.

U.S. personal income and other data "may offer a new perspective as to whether wage-driven inflationary pressures are a cause for concern," said David Jones, chief markets analyst at CMC Markets.

"Any suggestion that the Fed will have to further delay rate cuts could provide dollar support in the short term, but so long as yields continue to improve elsewhere, the greenback will almost certainly find itself under pressure in the months ahead," he added.

The pound has been helped by strong British merger and acquisitions flows and strong house prices. Data from lender Nationwide showing house price inflation at a 21-month high in November. Analysts expect the pound to move even higher.

"We are targeting cable (the pound) to reach $2.00 before the end of the year," said Monica Fan, global head of currency strategy at RBC Capital Markets.

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