Not cheap enough yet

19 October 2009 By Ian Campbell

Sterling enjoyed a sharp rally last week amid an apparent short squeeze. But the currency s ultimate fate will be determined by the UK s still frail fundamentals. Further weakness seems in store, as the UK seeks a rebalancing which megastimulus may have delayed.

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Foreign exchange traders' net short position – a bet that a currency will fall – on sterling rose to a record high of 65,346 contracts on October 13, according to the Commodity Futures Trading Commission.

UK unemployment increased by 88,000 to 2.47m in the three months to August from the three months to May. The rise was lower than expected. The unemployment rate rose to 7.9% from 7.6%.

Public sector net borrowing was £14.8bn in September, a little below economists' consensus forecasts of £15.5bn. It was the worst September figure on record, taking UK government borrowing for the first six months of the fiscal year to a record £77.3bn, against £33.8bn in the same period of the previous fiscal year.

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