Boost for pound renews confidence

Signs of renewed confidence in the pound have emerged as sterling reached its highest level against the US dollar since January.

The three-month high saw sterling break through the 1.50 dollar mark on several occasions on Wednesday, and rise to 1.137 against the euro.

These results reflected gloomy data on the US economy, which suffered from negative consumer inflation for the first time in more than half a century.

Analysts said investors are seeing signs of recovery from the global downturn with sterling, as the currency has been faring better than the euro and the dollar for some time.

Mark O'Sullivan, of Currencies Direct, said the pound may even rise by 10% against the dollar and the euro.

He said: "There's a little bit of belief then potentially that we can get ourselves out of this a bit quicker than the eurozone and the US.

"Holidaymakers may get a few more euros for their pound. Sentiment is certainly starting to turn against the euro, which means it is positive for sterling."

Signs quantitative easing may be used by the European Central Bank is also helping sterling's growth, according to Adam Seagrove, at CMC Markets.

The negative news from North America that US consumer prices data showed a fall of 0.4% over the past 12 months, and industrial production figures also showed a steep fall in March, with output down 12.8% year-on-year and a plunge in US retail sales have also given the pound a boost, analysts say.

Meanwhile the weak pound has caused retailers in the UK to raise prices on goods to cover import costs, pushing the Consumer Prices Index measure of inflation up to 3.2% last month.

The increase for sterling is a fraction of its worth in late 2007, when £1 equated to around two US dollars and 1.45 euros.

In January, the pound slumped to 1.36 against the greenback for the first time since 1985 following narrowly missing parity with the euro.