U.S. News

Dollar Falls to 14-Year Low Vs. Pound


The U.S. dollar fell Thursday to its lowest level against the British pound in 14 years and lost value against the euro and Japanese yen.
The dollar's decline came on mixed economic news from Washington and positive developments in Germany, Europe's largest economy.
The U.S. Commerce Department said consumer spending increased in October after two lackluster months, but the nation's retailers reported mixed results in November.
Meanwhile, Germany reported that its unemployment rate dropped unexpectedly to 9.6 percent in November as the number of people out of work fell below 4 million for the first time since October 2002 -- the latest evidence of a gathering recovery.
The pound rose as high as $1.9575 from its level of $1.9462 late Wednesday in New York, marking its strongest showing against the dollar since September 1992, before Britain crashed out of the European Exchange Rate Mechanism.
The euro rose to $1.3200 in afternoon European trading, up from $1.3156 late Wednesday. The euro has risen from below the $1.30 mark over the past week amid expectations that the European Central Bank will continue to raise interest rates, while the U.S. Federal Reserve holds, or eventually cuts, rates.
The dollar fell to 116.12 Japanese yen from 116.31 yen.
U.S. economic data are being watched closely for pointers on the Fed's interest rate course, and disappointing news recently has dimmed the prospect of higher interest rates in the world's largest economy. Higher interest rates, a weapon against inflation, tend to strengthen a currency by making investments in it more attractive.
Analysts suggested that the new U.S. data indicated the Fed will likely keep rates unchanged for the time being.
"Inflation remains stubbornly above the Federal Reserve target range of 1 to 2 percent, despite flagging growth in the second and third quarters. The Federal Reserve is not likely to risk additional inflation to shore up the economy by lowering interest rates," Peter Morici, a professor at the University of Maryland School of Business, said in a research note.
Federal Reserve "Chairman Ben Bernanke will want to make sure inflation is safely boxed before stimulating the economy, even if that risks a recession," Morici said.
Analysts said the pound, which is benefiting from rising home prices and merger and acquisition activity in Britain, could reach $2 by the end of the year. It last reached the $2 level on Sept. 8, 1992.
In 1992, the British government raised base interest rates as high as 15 percent in a futile effort to defend the pound's value against the German mark. After Britain dropped out of the Exchange Rate Mechanism, which was meant to eliminate exchange rate fluctuations in Europe, the pound plummeted to around $1.50 by the end of 1992.