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Sterling close to parity with the euro

Sterling is this evening edging ever closer to parity with the euro in what has been a serious shift in the exchange rate markets. The formerly strong UK currency has now fallen by over 30% against the dollar and approaching 40% against the euro over the last two years. As interest rates look set to fall further there is little reason or need for investors to look at sterling as the attractions are edging towards a low point. So what will pre-empt a recovery in the UK currency?

The strength of the UK currency is a reflection of the strength of the UK economy which is currently hitting levels not seen for some time. The fact that the currency has fallen against a weak dollar is a major concern and shows that there is still scepticism about a number of Gordon Brown's rescue packages. A serious increase in taxpayer's expenditure, which is being used to fund major rescue packages, will see the UK budget deficit hit £1 trillion in a couple of years, all of which needs to be paid back at some point.

A recovery in sterling would appear to be some way off and the situation could get very much worse before it improves.

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