ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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EXCHANGE RATES-Sterlings Contrived Strength

Sterling's Contrived Strength THE exchange rate of the pound sterling on the world currency markets, which had shown significant volatility in the first quarter of 1990, has been on the ascendant since then. It broke the DM 3.0 mark for the first time since October 1989 and against the dollar rallied to 1.90, the highest in nine years. The main factor behind the recent appreciation, apart from high interest rates, was the growing market confidence over the likelihood of Britain joining the currency-grid, Exchange Rate Mechanism (ERM), of the European Monetary System (EMS) with in a period of a year or so. This was the position before it emerged as a 'petro currency' after the onset of Gulf crisis. The economic fundamentals for the pound sterling (what with a growth rate of less than 1 per cent and an inflation rate of 10 per cent in the UK) remain negative, but the currency has been riding the crest propped up by official promises of UK joining the ERM.

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