Higgins, of currency broker Caxton FX, belives that with national debt over £800 billion, heading for £1 trillion, the escalation of public debt has worn heavily on Sterling during the global recovery. Any rise in investor confidence in the UK economy has been constantly overshadowed by the deficit, which, until recently, has not been publicly addressed by the Labour party.
Commenting, Higgins said: "The fragile economic recovery in Britain has struggled to keep pace with its continental counterparts and has been burdened throughout by a deficit which the UK government cannot sustain."
Higgins has emphasised the need to de-politicise the story on spending cuts and instead focus on their potential economic consequences, despite the media's fervent interest in Gordon Brown's alleged "cover up".
He commented: "These spending cuts have a real potential to strengthen Sterling. Huge deficits destabilise an economy, weakening the currency, but as the government starts cutting unnecessary public expenditure, we should begin to see a positive market reaction as stability returns to Britain's nascent recovery."
Higgins suggested that if the UK government follows through on the proposed cuts, Sterling may recover near to the €1.20 mark by mid 2010.
On the affect a Conservative victory would have on the pound, Higgins continued, "If the Conservatives do win the general election next year, the pound may also find support from the initial "honeymoon" period. Markets respond well to stability and such a change could provide a platform from which Sterling can strengthen."
