British pound tumbles to 7-week low as US recovery accelerates

By Shankar besta | March 28 2011 6:48 AM

The British pound fell for a fourth straight day against the dollar on Monday, plummeting to a 7-week low as US economy grew more than previously estimated in the last quarter of 2010 and markets pared back speculation over interest rate hike by the Bank of England (BoE).

Sponsorship Link

The sterling hit a low of 1.5959 against the greenback during early European trade, its lowest since January 31, before consolidating at 1.5984.

The pair is likely to find support at a low of 1.5819, reached on January 31, and resistance at Friday’s high of 1.6141.

The commerce department said on Friday that the US gross domestic product (GDP) grew by 3.1 percent in the fourth quarter last year, up from earlier estimate of 2.8 percent. In the third quarter, the US economy expanded 2.6 percent.

The UK sterling climbed to 14-month high of at $1.6377 against the greenback on last Tuesday, after an official report showed that inflation in the country rose to 4.4 percent in February compared with 4 percent in the previous month, strengthening expectations over rate hike by BoE in the near-term.

But, the central bank said last week that it saw merit in waiting” to know the impact of higher oil prices before raising the rates, curbing the rate hike speculation in the coming months.

However, BoE’s Monetary Policy Committee member Andrew Sentence on Monday said that he would like to see rates increased gradually, Reuters reported.

Sentence also said he was encouraged by the strength of the recovery in the manufacturing sector.

The UK factory orders rose to a three-year high in March as strengthening domestic demand boosted manufacturing output in the country.

Manufacturers’ total order book balance in Britain rose to +5 in March from -8 in February, the Confederation of British Industry (CBI) survey showed last week.

“The manufacturing recovery is picking up pace, with firms predicting robust output growth over the next quarter. Total order books have strengthened further this month, and were above normal for the first time in three years, as a firming of domestic demand adds to the healthy export outlook,” said Ian McCafferty, chief economic adviser at CBI.

The euro gained against the pound to 88.19 pence, its highest since late October 2010.

Also, sterling's trade-weighted index fell as low as 79.1, its weakest since late December, as the currency came under broad selling pressure.