U.K. Pound Rallies

The British pound rose against the dollar as optimism U.S. lawmakers will approve a bailout for automakers fueled demand for the currencies of countries with higher interest rates.
TradingEconomics.com, Bloomberg.com 12/10/2008 5:27:34 AM

The pound also strengthened against the yen and the euro even after the London-based National Institute for Economic and Social Research said the U.K. economy may shrink this quarter at the fastest pace since 1990. U.S. lawmakers reached a tentative agreement to rescue General Motors Corp. and Chrysler LLC that would protect jobs and parts suppliers.

The pound advanced to $1.4822 by 11:45 a.m. in London, from $1.4750 yesterday, and traded as high as 1.4865. It climbed to 87.38 pence per euro, from 87.60 pence.

The pound slipped 26 percent against the dollar and 19 percent versus the euro this year as the Bank of England reduced its benchmark interest rate to 2 percent, from 5 percent, to fend off the U.K.’s first recession in 17 years.

Gross domestic product fell 1 percent in the three months through November and will probably plunge more than that in the last three months of the year, said the London-based National Institute, whose clients include the central bank. The economy last shrank at such a speed in the third quarter of 1990, when it contracted 1.2 percent.

The pound was also buoyed as Chancellor of the Exchequer Alistair Darling is said to be considering credit guarantees for U.K. households and companies to spur bank lending. Darling is looking at a range of options to revive credit including whether to expand a 250 billion pound ($370 billion) Treasury program to support bank debt so it covers mortgages and other loans, a person familiar with the plan said.