Pound hits seven-month high against the dollar as it bursts through $1.60

British holidaymakers should be able to make their sterling stretch further as the pound goes up against the dollar and euro.

British holidaymakers fretting about their shrinking spending power abroad received a boost today, as a resurgent pound hit a seven-month high against the dollar, bursting through $1.60.

The value of sterling has dropped by around a quarter against major currencies over the past two years, as the UK was hit hard by the financial crisis and plunged into a deep recession. But as other countries have succumbed to the credit crunch, the pound has begun to recover.

Earlier today sterling jumped through $1.60, up from a low of $1.35 in January. It also made gains against the euro, reaching €1.15 and raising hopes that thousands of cash-strapped families heading for the continent this summer will be able to make their spending money go a little bit further.

David Bloom, currency strategist at HSBC, said the pound could scrape its way to $1.65 in the coming months - a level economists at the respected Organisation for Economic Co-operation and Development consider to be a fair value - but was unlikely to rise much higher.

"When you look at the US and you look at the UK, the two of them are in the same boat: why should sterling be incredibly cheap against the dollar, or why should it be incredibly expensive? They've fought it out to a draw," he said.

However, the pound remains well below its level before the credit crunch began, and economists hope that in the long term, the depreciation will help to lift Britain out of recession, by boosting exports.

"Once global demand recovers, the potential boost to net trade from the UK's increased competitiveness could be huge," a report from consultancy Capital Economics said.

Sterling's modest revival came as hopes of a rebound in the global economy drove the price of oil to a six-month high of $63 a barrel, almost double the low of $32 hit at the turn of the year.

As ministers from the oil-producers' cartel Opec prepared to meet in Vienna tomorrow, Ali Naimi, the Saudi Arabian oil minister, expressed confidence that demand for crude was rising.

"The price rise is a function of optimism that better things are coming," he said. "We see shoots of recovery. Demand is picking up, especially in Asia."

US crude oil for July delivery rose to $63.45 a barrel on the back of the news. This is the highest level since mid-November. In London, Brent prices increased by 81 cents to reach $62.05 a barrel.

Andrey Kryuchenkov, an analyst at VTB Capital, said: "We're not really seeing a strong recovery yet, but I think Opec is implying they don't see oil demand falling any further. Themeeting is widely expected to result in a decision to leave oil output unchanged.

Opec has cut its production target three times since September in a desperate bid to stabilise prices that tumbled from record highs of above $147 per barrel in July 2008 to $32.40 in December.Report by Heather Stewart and Kathryn Hopkins Guardian website.

Published: 27.5.2009