Pound survives 100 days of coalition - but will it last?

Worrying similarities

My main concern is that this looks all too familiar. Obama coming into power and winning over the general public, the US economy out-performing its growth targets and the dollar strengthening sharply against all the major currencies - 20 months on and look where the US economy is today!

We have just witnessed a prime example of what cost cutting/austerity measures can do to an economy in Greece, where such aggressive cut backs are likely to have contributed to the Greek economy contracting by a further 1.5%. This is the last thing the new coalition government will want to happen.

So, with the new government appearing to be holding together well, along with budget cuts initially protecting the pound's credit rating, it seems that investors have started to look at the UK differently.

This positive news for sterling, set against the backdrop of continued Euro downgrades and fears of a double dip US recession, has put the pound into the limelight as a potential safe haven currency. With the recent releases of UK gross domestic product growth at 1.2% from April to June (almost double the market forecasts of 0.6%) and the number of people unemployed falling by 49,000 over the same period, it's clear that the green shoots so often talked about are beginning to take hold.

However, the government will be under no illusions how much work there is still to be done. Sterling could well come under pressure in the coming months, particularly if the UK's economic outlook deteriorates from here.