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| Version 2 | Version 3 |
|---|---|
| Pound hits 26-year US dollar high | Pound hits 26-year US dollar high |
| (about 1 hour later) | |
| The UK pound has hit its highest level against the US dollar in 26 years. | The UK pound has hit its highest level against the US dollar in 26 years. |
| The pound has gained on the perception that US interest rates will be cut this week and UK interest rates will be left unchanged next week. | The pound has gained on the perception that US interest rates will be cut this week and UK interest rates will be left unchanged next week. |
| When UK rates are higher than US rates, investors are encouraged to exchange dollars for pounds to benefit from better rates of return. | When UK rates are higher than US rates, investors are encouraged to exchange dollars for pounds to benefit from better rates of return. |
| The pound rose as high as $2.066 in earlier trading, before paring gains slightly to $2.064. | The pound rose as high as $2.066 in earlier trading, before paring gains slightly to $2.064. |
| The pound also gained against the euro. | The pound also gained against the euro. |
| Many analysts expect the Federal Reserve, the US central bank, to cut interest rates by a quarter of a percentage point on Wednesday, in an attempt to limit the impact of a housing market slowdown. | Many analysts expect the Federal Reserve, the US central bank, to cut interest rates by a quarter of a percentage point on Wednesday, in an attempt to limit the impact of a housing market slowdown. |
| The Fed cut its main interest rate by half a percentage point to 4.75% last month, after problems in the housing market were seen to be spreading to the wider economy. | The Fed cut its main interest rate by half a percentage point to 4.75% last month, after problems in the housing market were seen to be spreading to the wider economy. |
| House prices have been falling and the number of foreclosures has surged in recent months after the Fed raised rates in an attempt to slow inflation. | House prices have been falling and the number of foreclosures has surged in recent months after the Fed raised rates in an attempt to slow inflation. |
| Recession risks | Recession risks |
| While inflation has been a problem in previous months, many analysts now say that the biggest worry is consumers reining in their spending. | While inflation has been a problem in previous months, many analysts now say that the biggest worry is consumers reining in their spending. |
| Should that happen, they argue, the US economy could splutter into a recession. | Should that happen, they argue, the US economy could splutter into a recession. |
| The next decision from the Bank of England's interest rate setters is due on 8 November, when they are expected to leave rates unchanged at 5.75%. | The next decision from the Bank of England's interest rate setters is due on 8 November, when they are expected to leave rates unchanged at 5.75%. |
| The perception that there will be no change has been strengthened by comments from one of the rate setters, Kate Barker. | The perception that there will be no change has been strengthened by comments from one of the rate setters, Kate Barker. |
| In an interview with the Guernsey Press and Star, Ms Barker was reported to have said: "We are asking ourselves if things are so different from August and do we actually have to cut rates?" | In an interview with the Guernsey Press and Star, Ms Barker was reported to have said: "We are asking ourselves if things are so different from August and do we actually have to cut rates?" |
| The pound is still some way off the $2.446 mark it reached in November 1980, but some analysts believe it could threaten those levels if economic conditions in the UK and US continue to diverge. | |
| James Hughes, a currency strategist from CMC Markets, said he believed the market had not yet factored in the likelihood of a further cut in US rates. | |
| Business impact | |
| While the weak dollar is good news for British travellers planning trips to the US in the run-up to Christmas, it makes the reverse trip for Americans much more expensive. | |
| The number of visitors from North America fell in the first six months of 2007. | |
| The strong pound is also inconvenient for British firms exporting goods across the Atlantic. | |
| The EEF manufacturers' organisation said the current exchange rate was making life "more difficult" for some British companies. | |
| But it added: "A strong world economy, a shift away from price-sensitive activities and the fact that their costs are spread across the globe have cushioned UK manufacturers from its worst effect." |