After rising to as high as $2.1161 in November 2007, the pound fell 26 percent in 2008 as the global financial crisis plunged the U.K. into its longest recession on record. It hit $1.3503 last January, the lowest since 1985.

Chancellor of the Exchequer Alistair Darling funded stimulus measures by record borrowing, swelling the budget deficit. It hit 15.7 billion pounds ($25.3 billion) last month, the most for any December since records began, the Office for National Statistics said Jan. 21.

Sterling's gains last year were driven by optimism that the central bank's plan to pump 200 billion pounds of new money into the economy and record-low interest rates would revive growth. Mortgages approved by the country's six biggest banks stayed close to the highest level in a year last month, and lenders predicted demand will remain "broadly stable," the Bank of England said on Jan. 21.

Inflation, Unemployment
The currency rose to a six-week high of $1.6458 last week after the inflation and unemployment data prompted speculation that the central bank would raise borrowing costs.

The BOE's key interest rate will match that of the U.S. Federal Reserve at 1 percent by the fourth quarter, median economist forecasts show. The Fed's main rate is now between zero and 0.25 percent. The predictions see the U.K.'s rate lagging behind higher year-end rates in the euro region, Canada, Sweden and Norway, making the pound a relatively less attractive investment.

"I don't think we can look to interest rates as the savior for the pound," said Nick Beecroft, a London-based senior foreign-exchange consultant at Saxo Bank A/S, in a Jan. 4 Bloomberg television interview. "It faces many headwinds, the most important of which is the possibility of a hung parliament."

Eoin Treacy's view The necessity of an UK election before June has delayed the implementation of budgetary measures needed to close the hole in the public finances. However, tough decisions on how to accomplish this will need to be taken regardless of who wins the election. A strong Pound is not in the country's interests at present and will likely to be resisted by the authorities if the currency is seen to be an impediment to growth.

The UK gained a competitive advantage by getting its devaluation in first and the currency has stabilized over the last year as the depth of global economic problems has become evident and the relative value of the Dollar and Euro were more broadly questioned. The Trade Weighted Sterling found support in late 2008 and has recovered somewhat since. The Index, which is mostly US Dollar and Euro, has sustained a progression of higher reaction lows since January 2009 and would need to sustain a move below 75.8 to question scope for further higher to lateral ranging.

Against some of the world's stronger currencies the Pound has not shown the same evidence of bottoming activity but has firmed recently. It found medium-term support in October near AU$1.73 against the Australian Dollar and posted a failed downside break below the same level two weeks ago. A sustained move above AU$1.84 would question the consistency of the medium-term downtrend. Compared to the South African Rand, Brazilian Real, Canadian and New Zealand Dollars, the Pound has posted its first higher low in a number of months which would need to be taken out to reaffirm the medium-term downtrends.

While the UK continues to face serious economic and budgetary problems, the country remains a major financial centre and continues to attract investor interest. The Pound remains a candidate for a lengthy convalescence, particularly against some of the world's stronger currencies but the above charts do not support the argument that we are about to face a currency crisis as has been suggested by a number of pundits.