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Has the UK pound risen too quickly?

The CBI has today revealed a significant falloff in export orders in the UK over the last four weeks due in the main to a recent bounce in the exchange rate of the UK pound against other leading currencies. As the UK pound fell more than 30% against the dollar many people had pinned their hopes on an eventual recovery in the UK being linked directly to the exchange rate. However, amid signs that the UK economy is possibly performing better than its European and US counterparts there has been significant interest in sterling.

Until domestic markets start to stabilise and then expand, the UK economic recovery is very much centred round exports. If the UK pound was to strengthen yet further against leading currencies this would place more and more pressure on exporters and potentially cut short any short-term rally. A stage-managed recovery of the UK economy is something which is very difficult to do and takes in a significant number of factors. The UK government is currently trying to align interest rates with growing interest in the mortgage market whilst trying to ensure that the pound does not rise too far and stifle any export driven recovery.

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