Dollar tumbles against other major currencies

That sinking feeling is back for Americans traveling abroad.

The dollar fell to a 26-year low against the British pound Monday and also tumbled against the euro, the Canadian dollar and other major rivals.

Currency traders said the market was again focused on the likelihood of stronger economic growth and higher short-term interest rates abroad compared with the U.S. Higher rates tend to attract global investors, bolstering a country’s currency.

“The dollar-bearish mode in the market is back,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York.

That’s bad news for American tourists overseas because the dollar’s falling value slashes their purchasing power.

It cost $2.016 to buy one pound in New York on Monday, the most since 1981 and up from $2.008 on Friday. At the start of the year one pound cost $1.96.

The euro rose to $1.362 from $1.354 on Friday. The European currency is nearing its record high of $1.365 reached April 27.

The buck fell to 122.32 yen from 123.14 on Friday.

The dollar has generally been declining since 2002.

The Bank of England may raise its benchmark short-term rate to 5.75% from 5.5% when policymakers meet Thursday, analysts said. The European Central Bank raised its key rate to 4% on June 6 from 3.75%.

By contrast, the U.S. Federal Reserve has held its benchmark rate at 5.25% for the last year.

Other factors also are pulling the dollar down, analysts said.

Recent heavy losses at two Bear Stearns Cos. hedge funds that invested in bonds backed by sub-prime mortgages have left some investors “concerned about the state of the U.S. financial sector,” said Chris Turner, a currency strategist at ING.

The pound rose Monday despite the discovery of car bombs in London on Friday and an attack on Glasgow’s airport on Saturday. The news actually may have helped the British currency by drawing investors to British government bonds in a classic “flight to quality,” traders said.