Sterling has not made any headway against the US dollar since the publication of the government's spending review on Wednesday.

While there were no major surprises from the planned spending cuts, it did set the tone for the sober grind Britons can look forward to in the coming years. A drop in retail sales yesterday did not help the mood, with many concerned that the spending cuts will prove too much for an already fragile economy. Hawkish Bank of England policymaker Andrew Sentance tried to lift spirits by highlighting the 'encouraging' growth in the manufacturing sector and confidence that the private sector will be able to soak up the jobs lost in the public sector. 'The last time public spending was cut back - in the 1990s - the private sector created more than two million new jobs.' [1] Without evidence that the UK economy is coping with the planned cuts, sterling may remain tepid against most currencies. The situation has been different against the US dollar as speculation over the Fed's monetary policies has severely weakened the US dollar in recent months. However, the US dollar rebounded this week and put sterling under further pressure as we get closer to the FOMC meeting on 2 November, where the majority are expecting some sort of new stimulus measures to be announced. Speculation that the Bank of England will introduce its own form of monetary stimulus may continue to weigh on sterling in the coming months.