The pound is now worth $1.96. philip delves broughton tells how the dollar fell so low |
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The last time the pound came this close to buying $2 was in September 1992, shortly before John Major, Norman Lamont and his then special adviser David Cameron oversaw sterling's chaotic exit from the European Exchange Rate Mechanism.
It has been a long, slow climb since then, but in recent days the $2 mark has come back into view and may very well be passed before Christmas.
The grim result for those of us living in New York is that the city is now swarming with cocky European tourists barking about the bargains to be had. Unfortunately, cheap Manhattan hotel rooms and discounted iPods for Brits are not the only consequence of a collapsing dollar.
For about the past six years, investors have been predicting a dollar meltdown. Basic economics seemed to demand it. Given the |
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| New York is now swarming with cocky European tourists barking about bargains |
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extent of American borrowing overseas, to fund both consumer and government spending, either America had to cut its spending and start saving - evidently impossible given the country's consumer culture, debt addiction and current military obligations - or let its currency devalue so as to cheapen the value of its debt. "Short the dollar" has been investment orthodoxy for several years.
Up to now the devaluation has been relatively orderly. The Bush administration has spoken repeatedly of its support for a strong dollar, while quietly letting it drift down. But with the currency now touching important psychological lows, such as $2 to the pound, unease is growing. Investors and economists are split on what will happen next.
The optimists believe that the United States, its economic allies and the financial markets can somehow manage the dollar's decline. The cheaper dollar will make imports into America more expensive, but Asian and European economies won't mind because 
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