Pound hits 26-year high against US dollar

The value of the pound rocketed to $2.1071 yesterday, a level not seen since 1981. The dollar also dropped to an all-time low against the euro after hints that China may dump some of its holdings in the US currency.

Vice chairman of China’s National People’s Congress Cheng Siwei was urging finance bosses to transfer its forex reserves to stronger currencies.

In the meantime, Nicolas Sarkozy, the French president, warned that the dollar’s continued weakness was a concern for world economies. He said if we are not careful, monetary disorder risks descending into economic war, from which we would all be victims.

Rising oil prices have also supported European currencies because of rumours that oil-exporting nations were selling dollars earned from petroleum sales to buy more euros.

US crude hit a new record high of $98.62 a barrel before falling back on news American oil reserves have dropped by less than anticipated, primarily due to consumers using less as prices rise.

Furthermore, the latest fall in the value of the dollar put pressure on global stock markets, with the FTSE 100 Index losing early gains to stand more than 80 points lower. Royal Bank of Scotland and Barclays were among the worst hit.

James Hughes, an analyst at CMC Markets, said the big move in the US dollar has caught people by surprise and it has affected the US futures market, which is weighing on indexes in Europe and London.

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