Pound plunges against the dollar

The pound has fallen to a 14-year low against the US dollar, with one pound buying less than $1.40.

During Tuesday sterling briefly recovered to just under $1.41 but soon began to slide again. At 1719 GMT, one pound bought 1.4037.

In recent weeks, the pound has weakened, as it is thought increasingly unlikely that the Bank of England's monetary policy committee will raise interest rates.

On Tuesday, economists said that the pound is being dragged lower by the weaker euro, which has also reached fresh lows against the US dollar.

Sterling's lowest point of the day was $1.3953, its weakest moment since 1986.

Euro low

Europe's single currency, the euro, had another bad day on the currency markets as well.

In the morning the euro fell as low as $0.8553, some 27% below the levels it was launched at in January 1999.

By late afternoon the euro had recovered to $0.8605.

"Sterling is now becoming infected by the euro's weakness," Claudio Piron, treasury economist at Standard Chartered Bank said.

The strength of the US economy combined with its relatively high interest rates has made it more attractive to investors than either the UK or Europe.

"We have been talking for a long time about the weakness of the euro but given where sterling is right now, it is time to be talking about the all-conquering dollar," Geoffrey Dicks, from Royal Bank of Scotland Financial Markets said.

Euro lifeline

On Monday, Bank of England governor Eddie George tried to throw a lifeline to the beleaguered European currency when he said that European central bankers believed intervention was an instrument that could be used.

Speaking in Basle after a meeting of European central bankers, he said they agreed that the euro's exchange rate was out of line with economic fundamentals.

Some market players had hoped that European finance ministers might use this weekend's meeting as an opportunity to talk up the currency.

But little concrete emerged from that Ecofin meeting.

And the 0.25% increase in interest rates by the European Central Bank last week, taking rates to 4.5%, was seen as too little, too late by traders.

The markets will be paying close attention to the remarks of Wim Duisenberg, the ECB president, to the European Parliament later on Tuesday.