By Lea Pachta

A City expert has warned that, despite UK unemployment falling unexpectedly in February to provide a welcome boost to sterling, market confidence in the pound remains uncertain.

Phil McHugh, senior executive dealer at leading foreign exchange firm Currencies Direct, said: “This positive news may be timely for the government as we draw nearer to a general election, but the currency markets are not getting carried away. There is still an acute awareness of the risk of a stuttering recovery as the threat of sharp public sector cuts, and of increased job losses as a result, remains.

“Though the pound has welcomed the news by rallying sharply against the USD and the euro - gaining over 1% against the USD (a cent and half rise), and 0.8% against the euro (a one cent rise) - the markets have an eye for the small print, which shows the number of longer term unemployed rising.

“Sterling has been on the ropes since the beginning of March and this relief for the pound is welcome, but the markets will not simply forget the rising trend of those who are economically inactive. The realities facing the UK economy mean the rally will inevitably run out of steam. Meanwhile, a double dip recession remains a real threat in 2010.”

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