Pound rallies against dollar after hitting 24-year low

THE pound staged a small rally today, but investors remained extremely bleak in their forecasts for the currency.

Against the dollar, it recovered by 1.18 cents but, at $1.3868, still remained well below the psychologically important $1.40 mark.

Yesterday it fell to its lowest levels since 1985, when Ronald Reagan's economic boom triggered an unprecedented surge in the dollar. This time, the pound's plight is due to the weakness of the British economy, which investors fear is set to worsen.

Adam Carr, senior economist at currency brokers ICAP, said today: "I'd dump sterling. The bad news out of European banks hasn't finished yet."

The pound slipped slightly against the euro at ¤1.065, but fell towards record lows against the Japanese yen.

The pound has fallen more than 3 per cent this week against the dollar and euro. Figures out tomorrow are expected to show the British economy contracted by 1.2 per cent during last October, November and December.