Guardian: Forget shopping, this could turn into a crash - by Larry Elliott

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Forget shopping, this could turn into a crash - by Larry Elliott

The last time the pound was at this level against the dollar was in the uneasy days of 1992 between John Major's April election victory and the cataclysm of Black Wednesday, when the markets realised that Britain's economic policy was based on smoke and mirrors.

Indeed, it is unclear why a $2 pound is being greeted with such enthusiasm on this side of the Atlantic. It makes a Christmas shopping spree in New York far cheaper but the British economy's problem is not that we shop too little but too much. Sterling's trade-weighted index hit a six-and-a-half-year high on Friday and the UK trade deficit is at about 5% of GDP. Economic fundamentals suggest the pound must go lower, just as it is obvious the dollar had to fall.Bernanke needs to start preparing the markets for rate cuts or he could be facing a real panic.