At the turn of the year the prospects for the pound didn’t look good. The dollar was looking strong, and the euro looked as if it was going to test parity.
The sterling index had just posted new all time lows at 73.17 and the banking sector looked set to implode spectacularly.

As January progressed the news didn’t get any better with Royal Bank of Scotland’s share price hitting all-time lows of 10p, and the dollar rate touching its lowest levels since 1985 at 1.3500.

Influential investors were also lining up to give the pound a kicking, including Jim Rogers who announced on the 20th January that sterling was finished “I would urge you to sell any sterling you might have” he said. “It’s finished. I hate to say it, but I would not put any money in the UK”.

He went on to say that the bail-out of the banks by the governments of the UK, and the US is a huge mistake and that we would be paying for the mistakes of both governments for years to come.

He could well be right on that score but for him to single out the UK, when the US is as much a basket case as the UK, was a little unwise.
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Since those dark days, the pound has managed to recover some ground and is currently up over 6% as at 22nd December, from the where it closed at the end of 2008.

The key question to be asked as we head into 2010 is can the pound put these lows behind it given the bleak economic outlook and the fact that the UK has just endured 6 successive quarters of negative growth.

Against the dollar the pound has recovered from trading at 1.4628 at the beginning of the year to be currently trading around the 1.5960 area, up just over 9% on the year as at 22nd December.

The technical prognosis is not good, however with the pound breaking below the 200 day moving average for the first time since May which could well trigger further declines against a resurgent dollar into the first quarter of 2010.

Against the Euro the prognosis is not much better even the pound has managed to make some gains recently over fears of sovereign debt downgrades in the Euro zone.

The Euro has so far managed to hold above its 200 day moving average, and has so far managed to halt further sterling gains, around the 0.8869 area.

The failure to sustain a close below this key long term support area keeps the downside pressure on the pound; however there is trend line Euro resistance at 0.9040, which could support the pound in the short term. A break higher would spell further sterling weakness.

There is no doubt that sterling is in for a difficult and choppy year, as we head into the next decade.

One of the main advantages we have over the Euro zone is the ability to set our own interest rates, and our own currency.

Certainly against the Euro there is the possibility of further sterling gains, especially given the condition of the economies of certain members of the Euro zone, as sovereign debt fears weigh on countries like Spain, Portugal, Greece and Italy to name but a few, put further strain on monetary union.

One thing is certain no-one is talking about Euro parity at the moment.