Stronger pound rises above $1.60

Pound vs dollar

The pound has risen above $1.60 for the first time since November, reflecting reduced fears over the outlook for the UK economy.

One pound was worth $1.6016, up 0.3%, having traded at $1.6030 earlier.

This reverses the trend which saw the pound fall to $1.36 in January, its lowest in more than two decades.

Signs that the UK economy could be over the worst of the downturn have prompted investors to shift away from dollars, which are deemed a safer investment.

Currency markets reflected a more optimistic tone from business organisation the CBI.

It said although consumer services - a significant contributor to the UK economy - had contracted sharply, businesses were a lot less pessimistic than three months earlier.

Debt concerns

But there are concerns from some analysts that the UK economy still has unresolved problems that will prevent sterling from continually rising.

A recent warning from rating agency Standard & Poor's that it might downgrade its outlook for the UK economy caused a fall in sterling's value.

The warning came after data confirmed that new government borrowing has soared, to a record of almost £8.5bn in April.

"Increasing government debt can only lead to higher taxes and a subdued economy for years to come, which does not make for a prosperous future," said Philip Manduca, head of investment at ECU group.

But the dollar strengthened against the euro after economic figures revealed only a limited improvement in French business confidence.

One euro dropped to $1.3965.

Also sending the euro lower were comments from a European Central Bank policymaker indicating that it could cut interest rates further.