The pound today hit a fresh two-year high against the dollar and flirted with levels against the beleaguered US currency last seen on Black Wednesday, 14 years ago.
Sterling’s spike came ahead of a large upward revision to third-quarter US GDP figures, which eased some concerns over the state of the US economy, but still highlighted weakness in the American housing sector.
US GDP expanded at a 2.2 per cent pace in the third quarter, the Commerce Department reported. The figure was far higher than the 1.6 per cent gain first estimated and beat expectations for a 1.8 per cent gain.
However, the US economy still slowed sharply from the previous quarter, when it grew at a 2.6 per cent pace. A fall-off in residential construction knocked 1.2 per cent from growth in the third quarter.
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Fears that the US housing slowdown could derail the wider US economy played a part in the dollar’s weakness. This afternoon, sterling stood at $1.9494, having hit a two-year high of $1.9545 earlier in the day.
The pound’s early morning peak was just below the $1.9550-mark sterling hit in December 2004. That was its highest level since Black Wednesday in September 1992, when the pound was ejected from the European Exchange Rate Mechanism.
The euro also eased against the dollar, from yesterday’s 20-month peak of $1.3203, to stand at $1.3170.
The dollar’s slide began in earnest last week on the back of comments from China’s central bank that it had doubts over holding the currency in reserve. The Chinese remarks were coupled with strong economic data from Germany, which boosted the euro, and came amid thin Thanksgiving trading, which analysts said helped exagerate the dollar slump.
Since then a slew of bearish US data has fuelled further dollar falls, with traders saying the possibility of the sterling hitting the $2 level is very much alive.
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Yesterday, the US National Association of Realtors reported that prices for existing homes in America suffered another record fall last month, dropping by an average 3.5 per cent from a year earlier.
Durable goods orders to US factories also tumbled by 8.3 per cent in October, their sharpest fall for six years, while American consumer confidence fell in November, a key survey showed.
Those figures overshadowed hawkish comments from Ben Bernanke, chairman of the US Federal Reserve, who said inflation was “uncomfortably high”. The suggestion that US interest rates may yet have to rise further were not enough to support the dollar.
This morning, sterling also hit a new eight-year high against the yen at 226.94 yen before paring gains to 226.22 yen.
The pound was steady against the euro at 67.57p.
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The pound last hit $2 on September 8 1992, at a time when it was linked to the Deutsche Mark through the ERM.
Eight days later, on Black Wednesday, heavy selling of the pound for foreign currencies saw its value fall and sterling was forced out the ERM.
The pound fell to $1.50 by Christmas 1992.