Sterling continues to lose ground

August 15, 2008

, ENGLAND, August 15 – The pound has fallen against the dollar for an 11th consecutive day – the longest run of losses in 37 years – on worries over the UK economy\’s strength.

Sterling touched $1.859 on Friday. As recently as mid-July, one pound would buy two dollars.

The pound dropped sharply on Wednesday after the Bank of England issued a gloomy assessment of the UK economy.

Measured against a basket of trade-weighted currencies, the pound is now at its weakest level since 1996.

The fall in sterling could help exporters whose goods will be cheaper overseas.

But it will hurt holidaymakers who have benefitted from a strong pound when travelling to countries which use the dollar.

"The US is still cheap, it\’s still a good holiday, but it\’s got a lot more expensive," said David Bloom, an analyst at HSBC.

Earlier this week the Bank of England\’s governor Mervyn King gave a downbeat forecast for the UK\’s economy, saying growth would be flat for the next year and that inflation could touch 5% before falling.

Economists had thought accelerating inflation would prevent the Bank of England from cutting rates, but the Bank\’s suggestion that inflation will begin to ease raised expectations of interest rate cuts and this hit the pound.

Lower interest rates mean investors get lower returns on sterling deposits, which makes the pound less attractive.

Fears about European growth have also helped the dollar bounce back from record lows against the euro.

And the dollar has been rising against most currencies following recent falls in commodity prices. Investors had been buying gold and oil to protect against dollar weakness, but they are now unwinding their positions.

The euro was trading as low $1.4735 on Friday. Earlier this year, the euro was trading at $1.60.

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