Concerns Over UK Economy Send Sterling To A 9 Month Low Against The Dollar

By: Mike Campbell
The current relative strength of the Dollar against Sterling and the Euro has as much to do with concerns over the European currencies rather than confidence in the Greenback; US economic performance data has hardly been stunning of late. The Euro is under pressure because of worries over the Greek debt position and to a lesser extent over the debt levels in Spain and Portugal. But then again, the US is saddled with its own very substantial budget deficit and debt concerns. The UK economy was the last major European economy to emerge from recession and it did so with a whimper rather than a bang, returning to growth of 0.1% in Q4 2009. The debt levels in the UK have also caused concern both within the UK and elsewhere. UK debt is currently 11.8% of GDP and is set to rise further. The budget deficit is comparable to Greece’s, but in absolute terms, the UK deficit is larger because the UK economy is substantially bigger than the Greek economy. If you add the fact that this is an election year in the UK and that a hung parliament (where neither of the major parties has a clear majority) is looking increasingly likely, it is easy to see why Sterling has just hit a 9 month low against the Dollar. At the end of yesterday’s trading session, the Pound had slipped to $1.5261, a level last seen in May 2009. The Q4 figures will be revised on Friday. Most analysts think that the weak growth seen will be revised upwards (but not by much), however, if the revised figures show that the UK did not exit recession then the Pound will take a nose-dive.