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This week Sterling has dropped to levels not seen since April, and we could retest the all time low € 1.0210 set last December. The catalyst for the latest sell off was a set of comments from the Bank of England underlining the fact that a weak pound was good for the UK economy, great news if you’re an exporter bad news if you’re an importer .The short term outlook for Sterling is more of the same as the market takes the easy option and sells the pound knowing that they have the backing of the central bank. However opinions are so divided on GBP/EUR ,that year end forecasts for 2010 range from as low as 85 cents to as high as € 1.30.

The key going forward will be economic growth, and this is what the BoE is hoping a weaker pound will achive.Get it right and the UK will start to raise interest rates faster than the Euro Zone and Sterling will soar. Get it wrong and with an election looming next year the pound could be in for one hell of a beating !

Discuss on this on the Currency Exchange Forum