The British Pound Pounds the Dollar To A New Low

The pound gained strongly against the US Dollar and touched the 2-dollar mark, the highest in the current year due to the worries faced by the US economy and after the Bank of England decided to hold on to the existing interest rates. The US dollar has also continued its downward slide against other currencies like the Euro, the Yen, the Canadian Dollar, the Yuan and the Swiss Franc.
The European Central Bank has also kept the interest rates at 4% and much would now depend on the conference, which is to be addressed by the bank’s president, Jean-Claude Trichet and where he is expected to stick to his tough posture of maintaining the current interest rates in order to achieve medium term stability. The pound meanwhile has risen to $2.0034 after a rise of 0.84. With the Bank of England’s hands tied due to rising inflation in food and energy bills, and the crude oil prices touching 105$ per barrel, there was no scope in reducing the interest rates at present since that could stroke the inflation into rising even more. So, with inflation on the way to touching 3% in the near future, The Bank of England will have to wait and watch the changing market conditions before deciding on when to reduce the rates in the future.
The Euro too has reached an all time high of 1.5347 against the dollar and 0.7692 against the pound. This has shaken up some of the countries politicians who transact in Euros but analysts say that the European Central Bank is not likely to step in to soften the Euro. Many experts also opine that the state of the US economy and the report of a blast at Times Square in New York could also be the reason of the dollars decline. New data from ADP which reported that there were 23,000 job cuts in the US private sector also seems to have aggravated the reports regarding the state of the US Economy. The fact that there are two more reports regarding the jobless claims and the non-farm payrolls data, which yet have to be reported could further weaken the dollar in case those reports display negative growth. So, experts are of the opinion that the Bank of England might not be able to get into any interest cutting mode due to the continuing inflation and with crude prices showing no indication of coming down, there are very few chances of the inflation coming back into its 2% limit.
So, despite the dangers of stunted growth in the future, the Bank of England is not in a position to lower interest rates. The gaining of the pound may be good news for importers but it is a cause for worry to Britain’s exporters. So, the gain in value of the pound might not be of much joy to average Britons who are already struggling with high fuel, utility and food bills and with the real estate and mortgage markets tightening the rules before shelling out money, they would have in fact appreciated an interest cut at least to scale down their mortgage payments. In fact the slowing down of the US economy has had a cascading effect in stock markets all around the world as Japan too has announced that its economy could witness a slowdown in the current year.
So, in addition to the Hong Kong and Japanese stock markets losing points over the last few days, the FTSE-100 too has seen a downturn after touching 6000 points and is now down to 5,702 points. There are some hopes that the US Federal Reserve could make a 0.75% rate deduction to ward off a complete slowdown in its economy.