KEY POINTS:
The pound reached a 26-year high against the US dollar during trading yesterday, touching US$2.066 in early trading, before slipping slightly to US$2.064.
After a few weeks of relative weakness, sterling is back to the levels seen earlier this summer, comfortably over the US$2 mark, with the euro also hitting "career highs" against the greenback.
Short term, the markets are much influenced by the upcoming decisions on interest rates to be made by the US Federal Reserve and the Bank of England.
The Fed is widely expected to announce a cut in its main interest rate, as the American central bank continues to support a financial system still in the grip of the credit crunch and a worryingly weak economy.
Many predict the Fed will follow up its half percentage-point rate cut in September with another, probably smaller, reduction when they wrap up their meeting. The federal funds rate will probably be lowered by a quarter percentage point to 4.5 per cent, most analysts predict.
The federal funds rate is the Fed's most potent tool for influencing economic activity. The aim above all seems to be to avoid a recession; the state of the dollar is a secondary consideration.
- Independent
