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Sentiment surrounding both the UK economy and Sterling is more positive.  But what about the future?

The debate will continue to focus on the impact of actions taken by Central Banks and Governments, coupled with the sustainability of economic recovery.

In the UK, the markets have now had sufficient time to digest the coalition government’s Budget, and the question now is how this will affect sterling’s recent shaky recovery.

From a sterling perspective, the Budget has been generally well received as the Pound strengthened by almost 0.2% against the Euro soon after Osborne began to speak.

Short term, the Chancellor's determined action has earned us credibility in international markets and there were no huge shocks for the currency markets.

The measures announced made a credit downgrade for the UK less likely and had reassured market confidence on the pound. But many analysts feel that any further rally for the currency was probably less likely as the austerity packages announced were already priced in by the markets. In the medium term, this should allay investors’ fears and prevent them from tarring the UK with the same brush as other European countries had the misfortunate of being landed with.

Global risk appetite will again be a critical factor influencing exchange rates, and the potential for raising interest rates could also become a decisive factor.

As regular readers of Citywire will be aware, a currency’s value is also determined by the health of its related economy; a thriving economy will typically attract more investment and capital inflows, and export more goods. To invest, or to purchase a country’s goods and services, investors and consumers will need to purchase that country’s currency, causing the currency to appreciate. With many countries having exited recession in the third quarter of 2009, the focus is now on the comparative rate and sustainability of that recovery.

It’s quite apparent that these tough times have forced both politicians and industry leaders here in the UK to act brutally and dare I say, honestly. In the past, institutions would try and cover up major losses and politicians would disguise true meaning with lengthy and complicated reasons and excuses.

The chancellor delivered a tough, simple, confident, yet humble budget. Traders and investors are accustomed to complex, structured and long winded speeches which require hours of deciphering before they can react. In my opinion, this was one of the biggest successes of Osborne’s first attempt at a budget speech. He delivered it to the public who had voted his party into power with concessions in certain areas made by both coalition parties.

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