The pound rose to its highest level against the US dollar in more than 12 years today, amid growing signs that the UK economy was strengthening.
Sterling hit a peak of 1.9223 US dollars – its highest level since September 1992, when the UK was forced to withdraw from the Exchange Rate Mechanism.
The move, which made the prospect of two US dollars to the pound increasingly likely, came as manufacturing data signalled the sector was recovering from its recent weakness.
It was also prompted by the record US current account deficit, which is expected to continue to widen unless the dollar depreciates.
Although the news will be welcomed by shoppers heading across the Atlantic for Christmas bargains, British companies dependent on the US will suffer as their goods become more expensive.
Tom Hougaard, strategist at City Index, said: “This is momentous. It is really frightening, it is an indicator that the big foreign investors are pulling the plug on the US.”