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Last Updated: Friday, 9 November 2007, 16:22 GMT
Pound touches new US dollar highs
Pound coin

The UK pound has remained strong against a weak US dollar on speculation that interest rates may be cut to help revive the world's biggest economy.

On Thursday, Federal Reserve boss Ben Bernanke warned of a noticeable slowdown in the US in coming months.

With interest rates unlikely to fall in other key markets, the dollar's rate of return looks unappealing to investors.

Sterling hit $2.1144 earlier for the first time since the early 1980s, while one euro hit a record of $1.4740.

The dollar also fell more than 1.5 yen to below 111 yen.

The dollar's slide may have another chapter if more unexpected bad news surfaces
Hideaki Inoue, Mitsubishi UFJ Trust Bank

In afternoon European trade, the dollar traded at $2.0970 against the pound and $1.4678 against the euro.

It came as US consumer sentiment recorded a larger-than-expected fall in early November, hitting its lowest in two years on the back of high energy costs and falling home prices.

The University of Michigan survey showed consumer sentiment falling to 75.0 from October's final result of 80.9.

The November reading was well below expectations and the lowest since 74.2 in October 2005 following Hurricane Katrina.

Dollar misery

As well as rate speculation, investors are worried about the impact of a global credit crunch.

Late on Thursday, ratings agency Standard & Poor said that an investment scheme exposed to risky US home loans may have started to liquidate its position after suffering losses.

This fuelled fears that banks will be hurt by additional losses from sour investments linked to once lucrative sub-prime mortgages.

The sub-prime market has been hurt by record defaults among home buyers who have become unable to afford the repayment charges after successive interest rate rises.

"The dollar's slide may have another chapter if more unexpected bad news surfaces and triggers expectations for further Fed rate cuts than the market now sees," said Hideaki Inoue of Mitsubishi UFJ Trust Bank.

Yuzo Sakai of Tokyo Forex, added that the euro was strong because inflation concerns in Europe meant that an interest rate cut was unlikely.

"Under such circumstances, investors will likely keep buying the euro against the dollar without hesitation," he added.

SEE ALSO
Pound strengthens against dollar
08 Nov 07 |  Business
Supermodel 'rejects dollar pay'
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Pound powers past weaker dollar
31 Oct 07 |  Business
Dollar plumbs new low versus euro
29 Oct 07 |  Business
Credit crisis 'still poses risks'
25 Oct 07 |  Business
Fed cuts interest rate to 4.75%
18 Sep 07 |  Business
US economy 'heading for slowdown'
05 Sep 07 |  Business

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