British expats in the Euro Zone whose income is in Sterling and who are constantly battling with fluctuation currency exchange rates are unlikely to see much improvement in the short term.
The Euro zone debt crisis and the impending emergency budget next month in the UK are both unlikely to result in a stronger Pound, according to analysts.
There are a number of reasons for Sterling's comparative weakness, the most predominant of which is Britain's exposure to the Euro zone, says Duncan Higgins, senior analyst at Caxton FX.
'The Euro zone comprises Britain's largest trading partner and a deepening of the crisis could quickly sap demand for UK exports. Inevitably then, our interests are similarly aligned as a strong recovery in Europe should have a positive impact on the British economy,' he explained. Concerns about the banking crisis in the Euro zone are also weighing on the Pound.
'The FTSE's recent declines have been led by the banking sector, with fears growing about the level of exposure that UK banks have to the troubles in Southern Europe. There are risks that Spain would have to step in to salvage more banks as the price of interbank borrowing is beginning to soar,' said Higgins.
Overall the Pound is still considered a 'risky' asset even although it rallied against the Euro yesterday. Adding to the Pound's already heavy load is the government's proposed action toward the deficit which has had a negative impact. 'Although the markets generally approve of the government's budget cutting policies, there are risks that these could undermine the strength of the recovery. Monetary policy will likely be kept loose longer than was initially expected to accommodate these cutbacks, which provides another drag on the currency,' he added.
However not all agree with this sentiment. The UK does not have the concerns about potential default or a restructuring of debt that the Euro zone does, according to Lauren Rosborough, currency strategist at Westpac.
Steven Barrow, head of G-10 currency research at Standard Bank, said; 'We do not believe that the debt crisis in the Euro zone means that there will be a debt crisis in the UK. The government's budget deficit may be higher than most in the Euro zone, but high deficits alone do not spell debt downgrades'.