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Sterling outlook is still weak

There is still concerns about the nationalisation of the UK banks, which continues to keep the downward pressure on the pound. Banking shares continue to move aggresively downwards, compounded by fears that the UK trade deficit continues to widen.

There has been talk about the government taking additional measures to begin to boost growth in the economy, one of which is the increasing of money supply, which will not provide any support to the pound.  Jobless claims still a concern, with unemployment at the highest level since 1997 with 1,92m people out of work, rising 131,000 in the last 3 months, which translates to 6.1% of the economically active population.

The USD has come off the recent lows on the back of the a risk-appetite as opposed to any significant data. The risk on the back of recession fears, home foreclosures, loss of jobs and the closure of small business, all darkening the cloud of what lies ahead.

The Euro has continued falling in its formation trend, however with little significant change on the way, Trichet has commented that rate cuts will come, just not in February. Portugal credit rating was downgraded, following Spain and Greece. The ECB monthly report, due on Friday should paint a bleak picture of the Euro-zone economy, which should weigh downward pressure on the Euro, however inflationary and growth projections will not be announced until March.

With the rising unemployment rates and the minutes of the BoE last rate decision was an 8-1 vote in favour of rate cuts, with David Blanchflower calling for a 100basis point cut, other members showing interst in deeper cuts but have concerns of the effect on confidence. The question still remains if the government will take action to support the pound.