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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.