Forex Focus: Sterling's rally could be short-lived "Sterling has been the major beneficiary of the Cypriot debacle," says Robin Haynes of Currency Index. It's started to fight back a little against the recently resurgent single currency. Helped by better UK economic figures recently, we might see the pound recover further in the short term. Europe's banking problems aren't confined to Cyprus. "The UK banks have already been recapitalised and although far from being in rude health they make a much safer destination for your cash than eurozone banks," believes Charles Purdy of Smart Currency Exchange. I include the German banks in this scenario as they don't seem to be as well capitalised as we think. The American dollar has also seen a boost against the euro and as Stephen Hughes, of Currencies.co.uk, notes "there is a fear that if Russia becomes unhappy with the Cypriot situation they may pull funds out of the eurozone as a whole." The situation in Cyprus has raised the stakes and puts a different complexion on problems within the eurozone. "No wonder we have seen the euro drop in value," says Chris Towner of HiFX. Cyprus makes up a tiny percentage of the EU's GDP, however this is a worrying precedent that is sending shock waves through the whole global financial market. The fears of the sovereign debt crisis have resurfaced to shake the calm that we have seen so far this year. "The European Central Bank [ECB] once again sits at the centre of the crisis," says Alistair Cotton of Currencies Direct. The central bank pulled funding for Cypriot banks, sparking a run on the banking system but it is in no position to bail them out directly. This time the problem is an out-of-control banking system not Cypriot debt. The main point to take away is that the next crisis will always erupt away from the safe-harbour the ECB created. The Budget announcements last month also helped sterling to rally, but Jeremy Cook of World First thinks it could be short-lived. I would recommend selling the recent highs as we expect economic data to remain weak in the short-term and this to result in further QE [quantitative easing] from the Bank of England to try and stimulate the economy. This could take place as soon as the bank's meeting later this week. Pumping more money into the economy through QE usually weakens a currency. Simon Smith from FxPro also warns against complacency. "There are three reasons why sterling looks better," he says. Firstly, so many had sold it in recent weeks that it was at strong risk of a bounce-back. This is the nature of currencies. Secondly, the Budget was not as bad as expected in terms of watering down the Bank of England's remit. Thirdly, events in the Eurozone have given sterling some support. It could continue in the coming weeks, but longer-term the outlook remains negative, especially against the dollar and less so against the euro. It's good news for those currencies not caught up in the eurozone situation. The Australian dollar continues to perform well as does the Canadian dollar and New Zealand's currency will strengthen if there is an increase in interest rates.