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Sterling exchange rate hits two-month high

After a very difficult period for the UK currency, sterling responded positively to news of the UK base rate cut and the suggestion that alternative quantitative easing methods were still some way off. The Bank of England's £50 billion asset purchase program also attracted much attention with suggestions that the UK government is not yet ready to print more cash, something which could have a serious impact on the overall attractions of the UK economy.

The partial recovery in sterling has been welcomed by many business leaders, something which has happened despite Gordon Brown's comments that he would not support the currency. It is also interesting to see that the international money markets do not yet believe that the UK base rate is ready to fall to around 0%, with market indications suggesting that a move to 0.75% could be the short-term bottom of the interest rate cycle. However, if the UK recession continues for some time then this 0.75% target may well prove well short of what is required.

For those looking for future indications regarding UK base rates they could do worse than monitor the money markets where the dissemination of information has proved very accurate in the past. That is not to say that money markets always forecast the correct movement of base rates, but more often than not they appear to be very much on the money.

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