Sterling climbs on US woes but are we really faring better?

The pound has leapt to a five-month high against the dollar as investors compare the UK favourably with the US. Are these hopes valid?

A good month for the pound

The pound has had a great July and finished the month with a flourish, adding yet another cent against the dollar.

From the end of June it has jumped around 11 cents to a five-month high above $1.57.

There is more than one reason for the sharp gains including some good news on the outlook for the world's banks, the receding fears about sovereign debt and some encouraging corporate news on both sides of the Atlantic and not forgetting the sharp expansion of the UK economy in the second quarter.

With people generally feeling more confident it is not surprising they have moved away from safe-havens like the dollar and gold and started picking up riskier assets.

Currencies though are also plays on the relative attractiveness of their domestic economies so the much better-than-expected news on UK growth in the second quarter and some less than inspiring economic news out of the US has added to support for sterling.

The cautious comments from the IMF and Moody’s about the outlook for the US have also been a boon to the pound.

After all, the US government is still spending money stimulating the economy and has made no plans to cut its massive debt mountain.

Mark Deans, dealing manager at Moneycorp, expects the dollar to continue to weaken over the next few weeks as sterling now looks in a relatively strong position and the market is encouraged by government plans to get on and fix broken Britain.

Sturdy sterling

The fact that sterling shrugged off this week's downbeat house price data from Nationwide and PricewaterhouseCoopers also shows how confident investors are feeling.

Deans thinks that while the UK data is still mixed it looks much better than the doomsday scenario many had expected a few months ago.