For a few moments yesterday the pound in your pocket would have bought just 98c as the pound fell below parity with the euro. While the currency did rally towards the close to end at €1.104 many believe we are now on the verge of a slippery slope for sterling, which could see the euro challenge the dollar and the yen as one of the main currencies around the world. So what does the future hold for the UK pound?

The initial downward reaction with regards to the exchange rate between the pound and the euro was prompted by a report from Bank of England which suggested that the UK economy is struggling and will lag many of the developed economies around the world when recovery finally comes. The feeling is that the UK economy is being held back by substantial national debt, a bulging budget deficit and overreliance on the financial sector, which regulators have targeted over the last 12 months.

As a consequence, foreign investment in the UK has fallen dramatically over the last 12 months and rather perversely, any reduction in the UK exchange rate against the likes of the dollar and the euro will probably attract the attention of foreign investors in due course. However, the risk reward ratio with regards to the UK economy compared to other economies around the world is not as attractive as some would have you believe.

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