Pound soars to high against dollar

The pound came within a whisker of the two US dollars barrier, amid signs that UK interest rates will rise again next month.

Sterling hit 1.994 US dollars earlier on Monday, the strongest it has been against the dollar since September 8 1992, after higher-than-expected growth in factory gate pricing increased the likelihood of a bank base rate hike.

The London shares, meanwhile, were powering ahead, with the FTSE 100 Index maintaining its near six-and-a-half-year high as it closed 53.8 points higher at 6516.2.

The strong economy is now leading market experts to forecast that the pound will break through the psychological two US dollar level this week.

Further economic data due out over the next few days could reinforce rate rise prospects, in contrast to fears of an economic slowdown in the US.

Alongside the producer pricing data, official inflation figures are due out on Tuesday, followed on Wednesday by the minutes of the Bank of England's last meeting on interest rates.

Martin Slaney, currency expert at GFT Global Markets, said the figures could even lead to a half-point rise when the Bank's Monetary Policy Committee meets early next month.

He said: "Given the strength of data we have seen, some are talking of the chance of a half-point raise at the next meeting and although unlikely - the Bank has never increased rates by more than a quarter of a point in one move - the market is now starting to factor this in as a possibility.

"Momentum is certainly with the pound right now and there's every chance that the higher volatility we are likely to see this week will take us above two US dollars."

Sterling has not reached more than two US dollars since mid-September 1992, just before Black Wednesday, when the pound was kicked out of the European Exchange Rate Mechanism.

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