Rush to dollar hits pound and the euro

Sterling fell 0.54 of a cent against the dollar to 1.9146, echoing similar-size falls against the greenback by other currencies including the euro, which fell even further below $1.50, losing 87 cents to $1.4953. Today's slide for the euro came on top of Friday's biggest one-day drop for the single currency since January 2001.

Investors were shocked by last week's warning from the European Central Bank that economic growth in the region had slowed more than it expected.

Meanwhile, in the UK, a slew of negative economic data due this week is expected to worsen the case for investing in the pound.

The CBI today admitted the British economy is in worse shape than it expected as recently as in June. CBI director general Richard Lambert said: "There is no doubt that the mood has darkened in the last two or three months."

In a letter to CBI members marking the credit crunch's first anniversary, he wrote that growth prospects for 2009 and into 2010 looked "no better than anaemic" as high inflation hampers the Bank of England's ability to cut interest rates and boost the economy. Rising prices were causing sharp falls in consumer confidence and spending, he warned.

Inflation figures due out tomorrow are expected to show the Consumer Prices Index jumped by 4% in July. Data showing rapidly rising factory gate prices today came ahead of the CPI figures. Economists now think inflation could top 5% next month.

On Wednesday, the Bank of England gives its forecasts on where inflation is heading with publication of its quarterly Inflation Report.
City analysts cautioned against viewing the dollar's recent gains as an indication that the worst is over for the world's biggest economy.

They stressed that global economic weakness rather than the economic strength of the United States is the key factor.