Sterling tops two dollars as greenback under rates pressure

NEW YORK, April 17, 2007 (AFP) – Sterling climbed above the psychological barrier of two dollars Tuesday for the first time since 1992 as data on both sides of the Atlantic suggested future rate movements will hurt the greenback.

The British currency benefited from higher-than-expected British inflation data which raised expectations of an interest rate rise, while the euro was propelled by a buoyant reading of German investor confidence.

The dollar was undermined by softer-than-expected core inflation data for March which prompted renewed speculation that the Federal Reserve will cut interest rates later this year.

The pound fetched 2.0063 dollars at 2100 GMT after 1.9900 late Monday in New York.

Global Insight analyst Howard Archer commented: “We believe that sterling could well remain above two dollars for an extended period.

“In the near term, the pound is likely to be supported by expectations that UK interest rates will not only rise from 5.25 percent to 5.50 percent in May, but could also rise further thereafter.”

An increase in interest rates tends to attract foreign short-term deposits, thereby increasing demand for the domestic currency and increasing its value on the foreign exchange marke