Inflation fears push Britain's pound to $2
The British currency hit a 15-year high against the dollar, which also lost ground to the euro.
LONDON - The last time the British pound was worth more than $2, the elder George Bush was waging a losing U.S. presidential campaign against Bill Clinton and the tunnel linking Britain to Europe was still under construction.
Weakness in the dollar also was evident against other major currencies.
It took almost 15 years for the pound to again touch $2, the level it breached yesterday after figures showing an unexpected surge in inflation in Britain led economists to conclude that multiple increases in interest rates were likely.
The prospect of higher rates can boost a currency by promising bigger returns on certain investments denominated in it.
While the pound had been flirting with the $2 level for several months, hitting it marked a key psychological notch in trading that analysts expected will hold.
The pound rose to $2.0066 from $1.9900 Monday.
"We believe that sterling could well remain above $2 for an extended period," said Howard Archer, chief economist at Global Insight Inc.
Tourism operators expect the new round figure to boost interest in travel bookings to the United States; shopping breaks in New York proved popular in November, the last time the pound threatened $2.
Conversely, Britain will become more expensive for U.S. tourists. But economists noted that the euro was also strong against the dollar, and local travel agencies do not expect to see a large drop in visitors given that the currency has been hovering near $2 for several months.
The currency spiked after the government's Office for National Statistics said consumer prices had risen 3.1 percent in March after a 2.8 percent increase in February. The government's inflation target is 2 percent.
Bank of England Governor Mervyn King said the faster inflation reflected an "unexpectedly sharp" increase in domestic energy prices in the second half of last year and higher food prices, caused by a weather-induced global reduction in supply. Inflation also was supported by increased spending and business confidence, he said.
Also yesterday, the euro rose to $1.3593 in European trading - close to its December 2004 all-time high - from 1.3549 Monday after a survey showed confidence among German investors rising.
The Japanese yen rose to $0.008407 yesterday from $0.008348 Monday.
