Forex focus: sterling races on but can it keep the pace? In fact, the Bank of England (BoE) is rapidly losing credibility as it has consistently said that inflation is going to fall back to its 2pc target. "Once again, the BoE will soon be in the position of needing to explain why inflation has not fallen as much as it anticipated three months previously," says Simon Smith of FxPro. Of course, nobody is expecting it to have perfect foresight, but the BoE is gaining a reputation for underestimating inflation. Alistair Cotton of Currencies Direct thinks the Bank will have to threaten higher interest rates - "even if it has no intention of following through" - to keep inflation expectations in check. And currency markets always love higher rates. The other reason sterling is looking in good shape is that problems abroad are undermining other currencies. Apart from the eurozone's well-publicised debt problems, Charles Purdy of Smart Currency Exchange points to "uncertainty for the commodity-backed currencies as Chinese growth falls, which could reduce the demand for imported commodities from Australia, Canada and Brazil. And in the US, early year growth has fallen back, undermining the dollar and increasing the possibility of further QE. With the the Queen's Diamond Jubilee celebrations pending and the Olympics less than 100 days away, the UK has a festive summer ahead, with an influx of visitors and locals spending more freely. But David Kerns of Moneycorp warns that the boost to the economy could be short-lived. "Looking forward, a summer of events including the Olympics, Euro 2012 and the Jubilee celebrations will continue to make it difficult to judge retail sales with any certainty," he says, "as they may slump soon after the frenzy of activity has died down." And Lloyds TSB International's Trevor Williams is also cautious about the future for sterling. For the time being, sterling is clearly benefiting from its 'safe haven' status. This could support sterling for some time, but we would note that the situation is volatile and the pound has experienced sharp depreciations and appreciations over the last year. The message seems to be that the pound has enough puff for the time being, but that it can't keep this pace up for too much longer.