One year on and no change, as parity fast approaches

City analyst Duncan Higgins, of currency broker Caxton FX, warned today of possible parity between sterling and euro as the pound plunged this week, slumping 6% against the euro in one month and equaling its lowest point in five months (€ 1.1012.)

Higgins said parity could be reached as a combination of concerns about quantitative easing, the state of the UK public finances, and the Bank of England's negative statements have made sterling vulnerable.

"The fall in Sterling reflects what we've already seen. The UK is so led by the financial sector that any negative news means the pound plummets. Investors have lost confidence in the UK economy and seen the fragility of the banking sector underlined."

Back in November 2008, Caxton FX predicted parity by the end of 2009, due to the UK's deepening recession. Higgins comments, "As we expected, the pound now finds itself in a similar position to December 2008, with the Bank of England again threatening to reduce the remuneration rate and confidence in the banks being undermined, whilst the Eurozone continues to show strong signs of recovery. We expect to see parity by the end of October 2009."

Putting added downward pressure on the pound will be the German IFo business climate survey on Thursday, which is predicted to reveal that business confidence is continuing to improve in the Eurozone's largest economy; thereby strengthening the euro.