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British Bid to Bolster Sagging Pound Fails

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From Times Wire Services

The British pound tumbled to new lows Monday, prompting the Conservative government to intervene, for the first time in almost four years, in an effort to prevent further erosion of the battered currency by raising interest rates. That effort had no immediate effect. The pound still hit all-time lows.

“This government . . . will take whatever action is necessary to prevent the pound from falling to levels where inflationary forces are stronger again,” declared Chancellor of the Exchequer Nigel Lawson.

As the pound plummeted, the dollar soared, rising to an all-time record against the French franc, a 13-year high against the Dutch guilder, a 12-year peak against the West German mark and a seven-year high against the Swiss franc.

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Measure Reintroduced Broad indexes of the dollar’s value shattered records at the Federal Reserve Board in Washington and at Morgan Guaranty Trust Co. in New York.

The Bank of England, in reaction, reintroduced the minimum bank lending rate--the rate at which Britain’s central bank lends to commercial banks.

The minimum lending rate used to be set once a week as a guide to the market, but the practice was abolished in August, 1981, when Prime Minister Margaret Thatcher’s government decided to let market forces fix the rates.

Specifically, the Bank of England raised interest rates by 1.5 percentage points to 12% in an effort to halt the erosion of the pound.

The move, aimed at raising yields available on investments denominated in pounds, and hence the attraction of sterling, forced British banks to start raising their base lending rates by 1 1/2 percentage points to the same level.

Complete Turnaround “This is a complete turnaround from early last week, when it said it would let the market determine prices,” said Timothy Summerfield, chief trader in the New York office of Continental Illinois Bank.

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“The bank is not so worried about the $1.10 pound as it is about the potential for a panic selling situation,” he added.

David Palmer, senior vice president at First American Bank of New York, said: “The most powerful influence on sterling right now is oil prices and until such time as that question is resolved the pound will remain under pressure.”

Palmer said with Britain one of the world’s largest oil producers, “sterling is a petro-currency no matter how you look at it. As a petro-currency, the pound was worth $2.45 when oil prices were going to the ceiling; we’re now seeing the other side of that coin.”

Foreign exchange dealers said currency markets were dominated by the gyrations of the pound.

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