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When will pressure on the pound reduce?

Over the last few weeks the UK pound has been under consistent pressure against the dollar with concerns about the UK budget deficit and the massive UK sovereign debt. The last couple of days have seen David Cameron clarify the position regarding UK finances and yesterday we saw Fitch suggest that the UK government needs to reduce the budget deficit by at least £83 billion over the next four years. This has all led to significant pressure on the pound which has fallen markedly against the dollar.

There is no doubt that the UK, like so many other countries around the world, is entering a period of austerity. While the pressure on the pound is likely to continue in the short term this is the pain needed before the long-term picture can improve in the UK. Rather bizarrely, further pressuring the UK pound against the dollar would make UK exports more competitive for US buyers and inadvertently could help to prop up the UK economy in the short term.

However, the main issue regarding the UK at the moment is the budget deficit and the need to reduce this as soon as possible to try and protect the UK government's AAA rating.

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