Sterling again strengthens as UK economy shows vigour

THE pound has continued to slide against a strengthening sterling on the foreign exchange markets

THE pound has continued to slide against a strengthening sterling on the foreign exchange markets. The Irish currency closed at 102.33p sterling yesterday, down from 102.45p before the long weekend.

Meanwhile, the pound continued to gain ground against other European currencies.

Sterling again advanced, setting a fresh high at 2.3760 deutschmarks and a 15 month high on its trade weighed index. The pound rose in its wake against continental EU currencies, closing at 2.1288 deutschmarks, half a pfennig higher than Friday's close.

The latest rise in the dollar is one of the factors supporting sterling, which normally rises along with the US unit because of the traditional trading relationship between the two.

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However, some analysts believe sterling is now rising largely independently of the dollar. Confidence has increased because of the healthy state of the British economy, they say, and the feeling that markets have nothing to fear from a Labour government.

The dollar rose over 109 yen for the first time in more than two years yesterday, climbing on worries about the frailty of the Japanese banking system and firmer US bonds.

The dollar hit a 28 month high of 109.23 yen in European markets, helped by US Treasuries regaining some of their recent losses ahead of Friday's important US employment report for May.

By the European close the dollar was trading at 109.18 yen and 1.5328 deutschmarks, compared with Monday's European levels of 108.28 yen and 1.5283 deutschmarks.

The yen was weak as the market was worried about the Japanese financial sector following the collapse of the Shinkyoto Shinpan KK credit firm.

It was the largest bankruptcy in Japan this year and the seventh largest in the post second World War period.

Investor focus was fixed on the US unemployment figures for May which is due on Friday and which should provide a strong signal on whether the Federal Reserve is likely to raise rates when it meets in July.

With sterling rising strongly, the prospect of Britain also cutting rates was seen as growing slightly, although most analysts still expect no change in British rates following a meeting today between the Chancellor of the Exchequer, Mr Kenneth Clarke, and the Governor of the Bank of England, Mr Eddie George.

"Chances have gone from zero to a small probability and there are one or two heroes saying the Chancellor may think he has room to cut rates tomorrow, said a strategist last night.