UK pound hits lows

June 12, 2001
Web posted at: 1049 GMT

LONDON (CNN) -- The UK pound weakened to an almost 16-year low against the dollar amid speculation about the timing of the country's entry into the euro zone.

The euro held its ground against the dollar, even as figures from France, the euro zone's second-largest economy, showed inflation was gathering pace, reducing the chances of the European Central Bank cutting interest rates.

The pound traded as low as $1.369, its lowest since September 1985,  from $1.373 on Monday, before strengthening to hover around $1.374.

The euro traded at around $0.846 per euro, above its six-month low of $0.842. The euro rose against the pound, fetching 61.63 UK pence compared with 61.37 pence previously.

The dollar benefited from growing worries about the euro zone economy and speculation that the election win by the UK's Labour Party last week would speed up entry into the euro zone.

Many UK business leaders expect the pound will have to lose about 15 percent of its current value against the euro to meet entry requirements.

In the euro zone, meanwhile, French inflation quickened and German exports fell as concern grows about the state of the bloc's economy.

 "Euro zone growth is going south, inflation is heading north and the ECB has hit the panic button," said U.S. broker Bear Stearns in a note to investors. "There is a real sense of benign neglect at work as well, as the ECB does not really seem to care all that much about the euro's plight."

The ECB could have another agenda, said Bear Stearns, of keeping the euro weak to boost more competitively priced euro zone exports to stop Germany falling into recession.

French consumer prices rose by a more-than-expected 0.7 percent in May, with the annual inflation rate jumping to 2.5 percent on an EU-harmonized basis.

Germany's trade surplus narrowed in April from March and economists said declining exports reflected the impact of the world economic slowdown.

The German statistics office said the trade surplus narrowed to 10.2 billion German marks ($4.4 billion) in April from a revised 17.4 billion marks in March.

"The data has not been seasonally adjusted yet, but you can already see that exports have dropped sharply," said Christoph Hausen, an economist at Commerzbank in Frankfurt.

"The weak world economy is having a heavy effect on the German economy and new orders from abroad do not give much hope for improvement," he told Reuters.

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