The pound has fallen to its lowest level in 20 years against sterling, while the euro continues to plummet on foreign exchange markets.
The news that UK unemployment is still falling led to a flood of money pouring into sterling.
UK unemployment fell by 21,900 to 4 per cent in December, its lowest level in 20 years, while average earnings growth remained steady at 4.9 per cent in the three months to November. The figures followed robust manufacturing data on Tuesday.
Sterling strengthened to 61.50p against the euro in late trading, from 61.76p a day earlier. At the same time, the pound lost further ground against sterling, closing at 78.18p, its lowest level since 1980.
According to Mr Jim Power, chief economist at Bank of Ireland, the market believes that the data point to a still rapidly growing UK economy and a tight labour market. That would imply that interest rates have further to rise.
European interest rates are also expected to rise, but not as fast or as far as UK rates. The European Central Bank is meeting this week in Frankfurt, but few, if any, observers expect it to make a move.
Continuing strong growth in Germany and Italy may persuade the ECB to raise rates before April, but they are unlikely to end the year above 4 per cent.
Sterling rates are already 5.75 per cent and many observers believe there will be another rise next week, with plenty more before September.
According to Mr Power, sterling is now heading towards 61.12p against the euro, the equivalent of DM3.20. That would be around 77.60p to the pound, a similar level to the 1980 low.
He said there was no reason why sterling's ascendancy should stop there. "It offers very attractive rates and will be more attractive when interest rates have risen again." The euro may also be about to test parity against the dollar again. In recent days, it has been hovering around $1.10, but according to Mr Power, it may test its December 3rd low of 99.67 cents over the coming days.
German Finance Minister Mr Hans Eichel said the low level of the euro against the dollar reflected varying developments in the US and the euro-zone economies.
He added that the euro was internally stable and that inflationary pressures were absent. "The foreign value simply reflects the differing economic developments in the euro and dollar areas," he concluded.
