Sterling continues to be friendless. The Bank of England kept UK interest rates on hold. The BOE have a very difficult balancing act. The economy is suffering but inflation is on the up. We have seen sterling lose 10% plus against the Euro in a very short period in time. This will help make our exports more competitive. However, at the same time it makes our imports more expensive thereby increasing inflationary pressures, especially as we have a balance of payments deficit. Retail figures have been mixed. M&S had a poor Christmas whereas Sainsbury and John Lewis seemed to do well. Also the credit crunch continues to be a problem with banks still wary in lending to each other. So overall not a happy situation which will take a while to work through. So we wait to see where the bottom is for sterling.
The US$ continues to gain against sterling, sitting at US$1.964/£1 inter bank, and lose against most other currencies. The US has very similar problems to the UK with large budget and balance of payment deficits and an interest rate that will be reduced significantly this year. What they will do relative to each other is difficult to assess but the market probably errs on the side of the US$ given how much it weakened against sterling last year.
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