The Great British Pound is certainly something that Britons are extremely proud off, clearly evidenced through the resistance to enter the Euro back in 1999. The Pound has always enjoyed a strong position as one of the leading currencies of the world built on Britain’s reputation as a stable and reliable economy. However, over recent weeks Sterling has seen a dramatic fall in its value against other major currencies such as the Euro and US Dollar due in part to the declining interest rate and deteriorating economic conditions.

The strength of the Pound has been weakening since mid 2008, where £1 got you over $2. Prior to this it seemed the currency was going from strength to strength as the US hit hard times due to the sub prime mortgage crisis and the credit crunch. In Europe, the Euro seemed to be steaming ahead as the Continent seemed pretty resilient to the crisis taking place across the Atlantic.

Towards the end of 2008, it seemed clear that Britain too was bracing herself for difficult times and that she was not immune to what was happening in the US. The signs were all around from the declining housing market to tighter lending conditions, ultimately resulting in a historic interest rate cut to 2%. This has had a negative impact on both the exchange rate against the US Dollar but more so against the Euro.

Britain is today faced with the prospect that the Euro may soon be on a par with the Pound for the first time in history. While the Dollar sits at a low of around $1.44 to the £. It has been suggested that the Bank of England may need to reduce the interest rate further to deal with worsening conditions and failing confidence. However, the European Central Bank is reluctant to drastically reduce their interest rates. If the scenario holds true where UK interest rates fall relative to ECB rates then it is likely the Pound will continue to weaken against the Euro as we move into 2009.