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Sterling stages a rally on the foreign currency markets

Sterling has today picked up sharply after weeks and weeks of pressure and selling by investors. This comes just ahead of the MPC meeting to decide their next move on UK base rates and until just a few hours ago had been expected to announce a sharp reduction in rates. However, there is now speculation that this move down may not be as severe as first thought which has caused the fillip in the exchange rate.

Whether the Bank of England is set to announce that the next base rate cut will be the last for sometime, or rates will remain at current levels, there would appear to be something ongoing in the background. Historically currency markets have been very "close" to the Bank of England and often indicate a potential move in base rates prior to any announcement. However, if base rates were to be reduced sharply later in the week this could see another sell-off in sterling and place yet more pressure on the UK import sector.

The sterling exchange rate has been a major target for investors over the last few months as ever worsening forecasts for the UK economy continue to be publicised. It will be interesting to see what the Bank of England has to say this week when the announcement is made and how this is interpreted by the currency markets.

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