Sterling hits 1 month high against the US dollar

Sterling soared against the US dollar this morning, hitting a one month high and climbing nearly 0.5 pc to hit $1.6267, it's highest since mid-December. Against the euro, Sterling gained 0.4 pc, hitting a 9 day low of €1.1160.

The pound gained off the back of optimistic comments from the Bank of England's MPC member Andrew Sentence, who said the Bank had done enough to lift Britain out of recession and suggested a rise in interest rates may happen this year. It was also supported by manufacturing data that showed British industrial output rose 0.4 pc month-on month- in November, slightly faster than expected.

Mark Bolsom, Head of the UK Trading Desk at Travelex, the world's largest non-bank FX Payments specialist, said "Although Sentence's bullish comments will reassure investors, they are at odds with Governor King's sustained support for UK exporters and a weak pound. They may have a negative impact on the UK's export trade, as sterling's strength will reduce their competitiveness in the international markets.

"Despite Sentence's optimism, we don't think the Bank of England will tighten up money supply anytime soon - they will be wary about choking off recovery in its infancy. It's very unlikely that they will raise interest rates above 0.5 pc for the next six months at least.

Bolsom expects the pound will continue to find support from Sentence's comments; however its medium-term prospects remain less certain, as Britain continues to face down it's ballooning budget deficit.