The euro continued to close in on a record high against the dollar, reaching its best level for two years at $1.3576 yesterday, while sterling came with in whisker of breaking through the $2 barrier.
Signs of higher UK inflation pushed the pound to its highest level since Britain fought its unsuccessful action to stay in the European Exchange Rate Mechanism (ERM) in September 1992.
The euro fell short of its December 2004 peak of $1.367, but hit a record high against the Japanese yen at Y162.42 after the weekend meeting of the G7 expressed no serious concerns about the weakness of the Japanese currency.
The euro has been underpinned by robust growth in the eurozone and hawkish rhetoric from the European Central Bank over interest rates.
The pound reached a high of $1.9939 against the dollar, a level last reached 14½ years ago, just before it was ejected from the ERM on "Black Wednesday".
The currency, which has been strengthening over the past few weeks, got another push yesterday after a rise in producer price inflation suggested the Bank of England would continue to increase UK interest rates.
Marc Chandler, strategist at Brown Brothers Harriman, said: "Current forces should be enough to push the pound through $2, with a May UK rate hike now factored in as a certainty."
Sterling has made several attempts to breach the $2 level in the past six months, but each time it has fallen back on signs of resilience in the US economy.
Expectations of a break through $2 kept the pound supported around $1.99 however.
Both sterling and the euro have benefited significantly more than the dollar from the carry trade, where low-yielding currencies like Japan's yen are sold to fund higher-yielding purchases. - ( Financial Times service )
