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Thursday, 21 June, 2001, 13:26 GMT 14:26 UK
Pound higher against euro
Chancellor Gordon Brown, Lord mayor of London David Howard and Sir Edward George at Mansion House
The Lord Mayor of London meets his guests
The pound has risen to two-week highs against the euro and the dollar, after the European Central Bank decided to leave its interest rates untouched at 4.5%.

Sterling initially pushed higher against the euro in early trading on Thursday, after Chancellor Gordon Brown effectively ruled out an early referendum on euro entry.

The trend continued following the ECB's decision to leave its interest rates untouched.

The pound also clawed back ground against the dollar to stand at $1.4112 by Thursday afternoon.

Devaluation

In recent weeks, Sterling has touched 15-year lows against the dollar on speculation that the pound would be devalued prior to euro entry.

Government moves to play down speculation of early euro entry have allowed the pound to recover.

And traders said Mr Brown's comments, in his annual Mansion House speech on Wednesday, that the government remained "cautious" about euro entry, were the final straw, forcing people to accept that the policy was unchanged.

Rate cut 'expected'

The euro drifted lower against the pound following the ECB decision on interest rates and was quoted at 0.6044 at 1255GMT.

It also lost ground against the dollar to stand at $0.8531.

Michael Schubert, an economist at Commerzbank in Frankfurt, said "It (the ECB's decision) was more or less expected.

"We expect they will do something before the summer recess.

"I think the main reason they held rates steady is that they want to see a decline in the inflation rate and we think this will happen in June, but of course they have to collect data."

The ECB may respond to the eurozone slowdown with a cut some time before its August break, although those plans may be hit because inflation is running above target.

Meanwhile, the UK government was denying it had shifted its stance on the euro, following Mr Brown's annual Mansion House speech.

A spokesman insisted that the "song remains the same" on the single currency, and Mr Brown's speech did not shift policy "one iota".

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See also:

21 Jun 01 | Business
Brown cools euro speculation
20 Jun 01 | Business
Rate cut prospects fall in UK
18 Jun 01 | Business
Q&A: Brown targets cartels
15 Jun 01 | Business
Testing the value of the pound
19 Jun 01 | Business
Government drive on competition
13 Jun 01 | Business
UK debate on euro heats up
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