British pound hits 26-year high against U.S. dollar

By Jackie Farwell
Associated Press
via Yahoo News
Wednesday, April 18, 2007

http://news.yahoo.com/s/ap/20070418/ap_on_bi_ge/dollar_4

NEW YORK -- The British pound climbed to a 26-year high Wednesday as the euro rose to its highest level in two years but fell short of its all-time record.

The strength of both currencies indicates Europe's economy is performing better than expected amid fears of a slowdown in the United States and booming competition from China.

It also makes visiting Europe more expensive for Americans, but shopping trips to the United States more enticing for Europeans.

The pound rose as high as $2.0132, then settled back to $2.0057 -- down slightly from the $2.0066 it fetched late Tuesday in New York. The last time the pound rose this high was in June 1981, the year Ronald Reagan took over the White House from Jimmy Carter.

It breached the $2 level Tuesday for the first time since Sept. 16, 1992, when Britain was kicked out of the European Exchange Rate mechanism, which pegged the pound to other EU member currencies. The spike came after a new report showed that U.K. wages rose at their fastest rate in almost three years from December to February, helped in part by the bonuses paid to financial services workers.

Global Insight analyst Howard Archer said the pound is likely to remain above the $2 level as interest rates rise. Inflation figures released Tuesday suggest that the Bank of England will continue to raise rates.

Higher interest rates, used to combat inflation, can bolster a currency by making certain types of investments more attractive.

Meanwhile, the 13-nation euro climbed to $1.3614, a level last reached in December 2004, before falling back to $1.3580 in late New York trading. That was up from $1.3565 late Tuesday, and about a penny short of its all-time high of $1.3667, also from December 2004.

Healthier European growth, continuing interest-rate increases by the European Central Bank and concern over the strength of the U.S. economy have boosted the euro toward historic levels. That spells a price shock for some visitors to the Continent.

"This is my second visit to Italy and I can notice a price rise, compared with my first trip five years ago," said Yen Wei-Min, a 41-year-old businessman from Taiwan visiting Rome this week. "My next holiday is going to be in a cheaper country, probably in Southeast Asia, in places like Thailand or Vietnam: beautiful but inexpensive."

In Paris, Jenny Sommerville, a 20-year-old from Boston, Massachusetts, on a weeklong holiday to France, said she felt the pressure of the strong euro.

"I try to cut corners where I can, like buying my food at the supermarket, but it's not easy," she said.

The Federal Reserve has kept its interest rates on hold over recent months amid mixed signals about the economy, even as the ECB and Bank of England have raised rates.

The dollar also fell against Japan's currency, dropping to 118.61 yen from 118.95 yen late Tuesday. The U.S. currency bought 1.2052 Swiss francs, down from 1.2087 late Tuesday, and 1.1284 Canadian dollars, falling from 1.1299.

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