The current strengths and weaknesses of sterling Free Essay Example, 1000 words

The falling trend of the pound sterling with respect to the Euro can also be seen in Figure 1 (See appendix). (x-rates) The chart that plots the Euro against the Pound Sterling shows how drastically the value of the Sterling fell with respect to the Euro from the year 2008 to the year 2009. What can also be observed is that the value fell the most in January 2009 and since then it has been rising a little, however the value of the sterling is nowhere near the value that was prevalent prior to January 2008. (x-rates) Figure 3 portrays a more recent relation of the Euro with respect to the pound sterling. Taking the Euro as the base category, the graph shows the increase in the number of the British pounds required for the exchange to 1 Euro from Dec 2009 to April 2010. It also shows that the least value of the sterling was recorded in November 2009 at the rate of 0.911551Â £ to 1 â‚ ¬. The value of the sterling with respect to the American Dollar has also fallen considerably. We w ill write a custom essay sample on The current strengths and weaknesses of sterling or any topic specifically for you Only $17.96 $11.86/pageorder now Figure 2 shows this fact. The graph takes the American Dollar as the base currency with the British pounds on the y-axis. (x-rates) What can be seen from the graph is the fact that the number of the British pounds that are required to get a single dollar have increased from December 2009 to April 2010. The value of the sterling fell to the least in these five months when the exchange rate fell to 0.670345 Â £ to 1 $ on 27th March 2010. Although the value of sterling against the major currencies like the American Dollar and the Euro has been falling, the strength of the sterling with respect to other currencies is a good point for the economy of the United Kingdom. Figure 4 reveals that the value of the sterling against the Japanese Yen has risen from December to mid March. (x-rates) The value reached the maximum on 9th November 2009 when just 0.0066 pounds were needed to get 1 Japanese Yen. Now that the trends in the current strengths and weaknesses of the sterling have been discusses it is important to analyse these trends. The Analysis There are various reasons that may be responsible for the downward trend in the value of the sterling against the other major foreign currencies. According to Ellis (2009), the increase in the national debt of the United Kingdom is one of the reasons of the falling sterling value. Since 2008, the national debt has increased to around 20%. In the year 2009 as Ellis (2009) states, the value of the national debt recorded was 804 billion pounds. The increase of the national debt means that the economy is suffering from a budget deficit.