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

But the renewed confidence is still fragile and many investors are still taking very short-term positions as there is little clarity and medium term projections are deeply vulnerable.

Mark Bolsom, head of the UK trading desk at Travelex Global Business Payments, believes there are still plenty of reasons to be cautious about the pound such as the weak exports and uncertainty about how austerity measures will affect consumer spending. Data could knock confidence and hinder the pound’s advance.

With most policymakers still weighing the pros and cons of adding more stimulus, it seems the central banks either here or in Washington will be doing little to bolster their currencies any time soon.  

And for as long as the powers that be are slugging it out over what they should do next and economists are divided about whether we’re heading for a double dip or a period of sustained if slow growth, currency markets remain vulnerable.

The dollar in particular will be in a tug of war unless the US data starts to look stronger. Bad news means no interest rate hike but too much bad news makes investors globally feel jittery and less attracted to risk.

Don't get complacent

Any sign that the US economy is actually faltering rather than just slowing down could see a sharp about turn in currency markets.

And the pound is also vulnerable to bad news in Europe, our key trading partner.

Anyone playing the currency markets has to have a strong belief they know how the world’s economies will perform in the months ahead. Stephen Hull FX strategist at Morgan Stanley thinks the US will fare better than Europe and he points out that since we traditionally lag the US by a couple of months the data there is a precursor of what we should expect here.

He says the only time that correlation has broken down in the past it has been to the dollar's advantage.

In short, to back the pound now means a belief that we will not follow in the US’s footsteps and that the good news here will continue even as people lose faith in the US.

There are still as yet few reasons to believe that likely.