Zimbabwe Dollar Gaining on Sterling

Now this is comical...

More Unloved than Even Mugabe's Dollar

It says something about your currency when foreign exchange dealers are even prepared to swap it for the Zimbabwean dollar. Yet this was the pitiful fate of sterling yesterday as it suffered its biggest rout on the currency markets for more than a year.

Apart from the pastings received at the hands of the US dollar and the euro, sterling also fell by more than 1.7 per cent against Zimbabwe’s much-mocked paper, completing a decline of more than 7 per cent since the end of January.

Some economists are convinced that this could be the start of a sterling rout, with investors losing confidence in Britain’s resolve to tackle the gaping hole in its public finances.

The weakness of sterling over the past two years has been welcomed by Mervyn King, Governor of the Bank of England, as a boost for exporters. So investors believe the authorities will do nothing to shore up the currency.

One senior banker said yesterday his big worry was that if a bailout of Greece was agreed, all the hedge funds that have been shorting the euro could turn their attention to sterling.

Technical factors may have been in play, such as the Pru’s need to exchange sterling for dollars ahead of its $35.5 billion acquisition of AIG’s Asian business. But a bigger influence was undoubtedly the Sunday Times poll predicting a Labour election victory. Gordon Brown has been accused of many things. But the prospect of his re-election resulting in Robert Mugabe’s currency being preferred to sterling must surely be one of the most hurtful.