Pound near 15-year lows

June 7, 2001
Web posted at: 0851 GMT

LONDON (CNN) -- The UK pound recovered some ground on Thursday after hitting 15-year lows.

The currency last traded at $1.3915 after earlier weakening to $1.3877, its lowest since early 1986.

"Markets are nervous about the outlook for euro entry,"  Steve Barrow, currency economist at U.S. brokerage Bear Stearns, told CNN. "The market is pricing in the possibility of a remote chance of entry into the euro in the next parliament."

UK voters are going to the polls on Thursday to elect a new government in a general election.

The Bank of England has always said that the pound would have to fall for euro entry because it would not be good for the economy if the UK went into monetary union with its currency at present levels.

The pound currently buys 3.35 German marks compared with 2.95 marks per pound when the UK was ejected from the European Exchange Rate Mechanism in October 1992.

It would have to trade at around that level for the government to give the go-ahead for entry, analysts said.

The euro rose to 60.81 UK pence but a future government would want the pound to join the single currency at a weaker level, perhaps from 67 to 70 pence.

The UK's leading businessman are in favour of the country's early entry into the euro to reduce currency conversion costs from their businesses.

While a weaker pound makes imports more expensive, it also makes British exports cheaper and more competitive, which would boost industry.

Nervousness in currency markets over the UK election was increased by the outside chance that the European Central Bank could spring a surprise rate cut when it meets later on Thursday.

Most analysts believe the rate will be left at 4.5 percent, but the ECB has already stunned markets this year with its quarter-point rate cut on May 10.

The UK stock market has been largely unaffected by the campain, with the  FTSE 100 of leading British shares remaining in a narrow corridor.

On May 4, before the campaign began, the FTSE 100 stood at 5,870.3 and on the eve of polling it closed at 5,901.5.

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Euro takes a blow – June 1, 2001

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