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The dollar rebounds to leave sterling struggling

The US dollar saw a substantial rebound in late trading on Friday as the US market enjoyed a short rally and US government stocks also joined in. This late burst of enthusiasm saw the pound decline to US$1.4466 on Friday, down 0.5% on the week. While this move may not sound significant it leaves sterling at its lowest level since April 2002 against the dollar. Despite the US economy being one of the weakest in the world at the moment it would appear that the situation in the UK is worse still.

As we have touched on in a number of recent articles, a reduction in the sterling dollar exchange rate will assist UK exporters although importers will see a significant increase in costs. This now puts the UK in a very difficult situation as a lower pound exchange rate could help to refloat the economy while also increasing the cost of living via higher import costs. The government is stuck between a rock and a hard place although in reality with UK base rates set to fall in the short term there is very little they can do.

Whether we see a rebound in the sterling exchange rate when interest rates hit "rock bottom" remains to be seen as any recovery will depend upon an improvement in the UK economy.

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