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In the last month sterling has lost over 1% against the euro and just under 4% against the USD. The surprising move is the fall against the euro as the Greek fallout has held court in the media for sometime now and yet sterling falls against the euro. Weaker retail sales and weak business and mortgage lending have compounded the weak sentiment, however the real danger for sterling is the UK deficit. The economists are arguing with each other on whether to cut now or later- the common agreement is that cuts are inevitable but when? Economists should focus more on the how and what to cut and the politicians should lay their cards on the table with their full deficit reducing plans outlined now to avoid further uncertainty. The credit agencies want credible plans and not political or economic disagreement.

Lots of politics thrown into the mix over the weekend with news of a narrowing in the polls and Heseltine touting a hung parliament did not dent sterling further. However we can expect the election run up and the focus on the deficit to continue to affect the pound.

Sterling also lost further ground against the USD following the Feds decision to increase its discount interest rate by 0.25% on Thursday evening. Some of these gains have been lost after a fed member underlined the policy to maintain “ultra-low rates for some time” tempering the hawkish sentiment. The big economic news this week will be revision of Q4 2009 GDP on Friday- the markets and sterling will hope to see an upward revision from the 0.1% level. In other news we have the German IFO survey on Wednesday and US revised GDP on Friday- in addition Ben Bernanke is due for his semi-annual testimony on monetary policy on Wednesday.

The AUD is still the darling of the currency markets pushing higher against the USD, EUR and GBP. The fuel behind the surge lies in higher interest rates which could rise further and a strong underlying recovery.

Discuss on this on the Currency Exchange Forum