Sterling rose on the exchanges yesterday and has gained 12 percent against the euro in 2009 so far.
Sterling is getting stronger, with some investors believing that the currency is "oversold".
This is the view of foreign exchange provider HiFX, which has observed the pound strengthening against the euro by around 12 percent so far this year. This bounce follows a long period of declines on the exchange at the close of 2008, with the pound dropping from €1.35 to just €1.02 by the end of December.
Investors had been selling pounds and buying euros due to what they saw as the extra vulnerability the UK, with its large banking sector and high levels of consumer debt, had to the global credit crunch and financial crisis compared to the continent. However, a series of negative economic news reports from eurozone countries seems to have led to perceptions changing.
Over recent weeks, sovereign debts for member states Spain and Greece have been downgraded by credit rating agencies. There has also been increased concern among investors as to how the slump in demand for goods and services caused by the downturn would affect big European exporters such as Germany.
Evidence for this decisive shift in sentiment was also provided by the fact that the pound actually rose against the euro in the wake of the Bank of England's announcement that it would cut its official interest rate from 1.5 to one percent yesterday. This is surprising, as rate cuts from a central bank generally lead to a weakening of the relevant currency's position.
Marc Cogliatti, currency strategist at HiFX, said: "Today's decision … was widely anticipated by the market and thus there was no negative impact on the UK currency. The pound is still looking oversold and undervalued so we anticipate that the current correction will continue further before it runs out of steam.
"Nevertheless, it is still too soon to call a base for sterling and as yet, the longer term downward trend remains unbroken."
This morning on the currency exchanges, sterling stood at €1.152 against the euro. The pound has risen by around 8.5 percent against the dollar in 2009, and stood at just over $1.47 this morning.
