Sterling still caught in the crossfire
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.A day of turmoil on the currency markets saw the dollar touch a two and a half year low against the German mark yesterday. It also fell to within one yen of its post-war low against the Japanese currency, before recovering against both the mark and yen.
Sterling was caught in the crossfire. The pound traded below DM2.35 yesterday, and analysts said it could swiftly head for the all-time low of DM2.3147.
The Bank of Japan intervened to keep the greenback above Y97, while the central banks of Italy and Portugal sold marks to help their own currencies. Widespread market rumours of concerted intervention by the world's central banks, particularly the US Federal Reserve, were, however, unconfirmed.
News that IG Metall, Germany's engineering union, would hold a strike ballot early next week strengthened the mark. Investors see the risk of a high pay settlement following a strike as tending to keep German interest rates higher.
Favourable US trade figures for December later helped restore some calm to the foreign exchanges. Although the trade deficit widened to $108.1bn, the biggest since 1988, the gap narrowed sharply between November and December. A trade shortfall of $7.3bn was well below market expectations.
The dollar moved back above DM1.48 from its low of DM1.4760 for the day. Even so, most analysts believed it would continue to fall next week. One reason is the continuing concern that financial collapse in Mexico cannot be avoided. This would pose such a threat to the US financial system that the American authorities would have to commit far more money to a rescue.
A second cause of dollar weakness is the mounting evidence that the US economy is slowing. Keith Edmonds, an analyst at IBJ International in London, said: ``There could be a lower and earlier peak in US interest rates than anybody thought.''
Many were also gloomy about the pound. One London dealer said foreign investors had scanned the past week's headlines and concluded that Britain would have a socialist government by the summer. But Chris Turner, currency strategist at BZW, thought there was a chance sterling would stabilise if next week brought better economic data.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments