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Pound tops $2 for 1st time since 1992

Early dollar exchange rates in London. The British pound has gained strength for months against the dollar and the euro. (Kirst Wigglesworth/Associated Press)

LONDON -- The last time the British pound was worth more than $2, the elder George Bush was waging a US presidential campaign against Bill Clinton and the Eurotunnel linking Britain to Europe was still under construction.

It took almost 15 years for the pound to again touch $2, the level it breached yesterday after figures showing an unexpected surge in inflation led economists to conclude that multiple interest-rate increases were likely. The prospect of higher rates can boost a currency by promising bigger returns on certain investments denominated in it.

While the currency has been flirting with the $2 level for several months, hitting it marks a key psychological notch in trading that analysts expect to hold.

The pound reached a high of $2.0074 before dropping back to $2.0040 in afternoon European trading, up from $1.9900 late Monday in New York. The last time the currency traded above $2 -- on Sept. 16, 1992 -- marked the end of Britain's membership of the European Exchange Rate mechanism, which pegged the pound to the currencies of other EU members.

"We believe that sterling could well remain above $2 for an extended period," said Howard Archer, chief economist at Global Insight.

Tourism operators expect the new figure to jog interest in bookings to the United States, as it did the last time the pound threatened $2 in November.

Conversely, Britain will become more expensive for US tourists -- but economists noted the euro is also strong against the dollar and local travel agencies do not expect to see a large drop in visitors given that the currency has been hovering near $2 for several months.

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