In regard to purchasing power, the pound is still slightly overvalued on a trade-weighted basis, although the situation is not extreme against the dollar; Sterling is certainly more comfortable now than it was at levels above 1.90. The trade deficit narrowed slightly to 4.96 billion pounds in May from an upwardly-revised 5.13 billion the previous month. The underlying trade concerns will become more significant if underlying Sterling confidence deteriorates.
The pound is no longer a petrocurrency, but the UK is still running a net surplus on the oil account, which will support Sterling to some extent if oil prices stay high. This will be particularly important given rising oil prices, which willput renewed upward pressure on the U.S. trade deficit.