London, Nov. 12 (Bloomberg) -- The British pound may rise against the dollar as higher interest rates in the U.K. than those in the U.S. boost demand for the currency. Rising house prices and consumer spending have helped protect Europe's second-largest economy from faltering growth in the U.S. and the 12 countries sharing the euro. The Bank of England last week kept its key interest rate at 4 percent, while the Federal Reserve cut its target rate for overnight loans to 1.25 percent.
``Investors are going to put their money into the highest- yielding instruments,'' said Simon Derrick, chief currency strategist at Bank of New York. ``The fact that the BOE is not prepared to put down interest rates'' is pushing the pound toward $1.60 and ``maybe we can even hit $1.70.'' The pound was at $1.5894 at 9:30 a.m. in London, from $1.5878 late yesterday, when it rose as high as $1.5968, the most since April 5, 2000. One euro bought 63.62 pence, compared with 63.70.
U.K. retail sales grew an annual 7.1 percent in October, up from 6.3 percent in September, the British Retail Consortium said yesterday. Sales increased 4 percent in shops open more than a year, compared with 3.4 percent the month before. U.K. inflation accelerated in October, decreasing the chances the Bank of England will lower lending costs, the government said.
Retail prices excluding mortgage-interest payments, the bank's main inflation gauge, rose 2.3 percent from a year earlier, after a 2.1 percent gain in September. Economists surveyed by Bloomberg News had expected a gain of 2.2 percent. Britain's unemployment rate remained at a 27-year low in September, encouraging the household spending that makes up two- thirds of Europe's second-biggest economy. Economists expect a government report tomorrow to show the jobless rate held at 3.1 percent last month.
Iraq
The dollar may also be pushed down by concern the U.S. will go to war with Iraq, Derrick said. Iraq may not be able to meet the demands laid out by the United Nations designed to rid the country of any weapons of mass destruction, Saddoun Hamadi, chairman of the Iraqi parliament, said in a statement broadcast on Iraqi television late yesterday.
Iraq has until Friday to announce its decision on whether it will comply with the Security Council resolution demanding unrestricted arms inspections approved last week. The U.S. said it is skeptical Iraq will comply with UN demands. The parliament will vote today on whether to accept the UN resolution after hearing calls to reject the ruling. Saudi Arabia and Jordan urged Iraq to agree to UN demands to avoid war. //www.quote.bloomberg.com