London, April 1 (Bloomberg) -- The British pound approached a two-week high against the dollar amid speculation the war in Iraq will weigh on the U.S. economy, dimming demand for some American assets and the currency to buy them. The pound rose as high as $1.5840, its strongest since March 17, from $1.5791 late yesterday. It was at $1.5796 at 7:10 a.m. in London. The U.K. currency was little changed at 68.95 pence per euro from 69.04. It has dropped 1.8 percent against the pound and 5.5 percent against the euro this year.
The Standard & Poor's 500 index dropped 1.8 percent yesterday, its fifth decline in six days, on concern the war may last for months and already is curbing business spending. Economic reports this week are expected to show U.S. manufacturing contracted and the jobless rate rose in March. ``The dollar will remain under pressure in the short term,'' said Hans Redeker, head of foreign-exchange strategy at BNP Paribas. At the same time, some investors ``are overly pessimistic about the war, and if we got some positive news'' from Iraq, the dollar will rally, he said. Though the war tends to bolster the pound against the dollar, the U.K.'s close military alliance with the U.S. weakens the British currency by making it less of a so-called haven investment.
U.S. manufacturing probably contracted in March for the first time in five months, economists polled by Bloomberg News expect a report at 4 p.m. London time to show. The Institute for Supply Management's factory index is expected to decline to 49 from 50.5 in February, the poll showed. Readings below 50 signal deteriorating business conditions. The U.S. jobless rate probably rose to 5.9 percent in March from 5.8 percent in February, economists expect a government report Friday to show. U.K. Prime Minister Tony Blair may delay a referendum on joining the euro until 2006, European Commission Vice President Neil Kinnock told the Financial Times in an interview. //www.quote.bloomberg.com