Sterling could go further against dollar

Sterling is set for further gains against the dollar in the third quarter, according to Caxton FX, the leading foreign exchange broker, and could touch $1.70 in the late summer or early autumn.

Sterling saw a significant recovery against the dollar in the second quarter, rising 15% and retracing many of the losses it suffered over the winter. But it remains 22% below its level of November 2007. It hit an eight-month high against the dollar on June 30 at $1.67 before settling at £1.63 by the end of the week.

"There are risks for sterling but on balance investor appetite for greater risk will override the problems," says Alex Dunn, senior trader at Caxton FX. "The UK economy still faces sinking tax revenues and steeply rising borrowing but the worst of the recession seems to be over. The "safe haven" currencies such as the dollar and the yen are weakening and we expect this trend to continue in the coming quarter as we see more positive numbers on housing and consumer confidence and the equity market makes further gains."