MARK OUTTEN<br /><strong>SENIOR DEALER, GFT</strong><br /><br />THIS summer has promised many great comebacks. Tom Watson only narrowly failed to secure a sixth Open title at the age of 59, Lance Armstrong&rsquo;s attempt at an implausible eighth Tour de France victory disappeared in the mountains and Michael Schumacher&rsquo;s eagerly anticipated return to Formula One was thwarted.<br /><br />So what of the comeback for sterling: will that too end in failure? The pound&rsquo;s value has appreciated markedly this year, appreciating from the lows of around 1.35 against the US dollar in January to above 1.70 this summer.<br /><br />But this rise was stalled on 6 August when the Bank of England announced a &pound;50bn extension to the quantitative easing programme (QE). The market had previously believed that the Bank was ready to hold back on any further expansion to the programme, content that there were sufficient policy measures already in place to stimulate the economy. The market, wrong-footed by the Bank&rsquo;s actions, soon had the pound trading 3 per cent lower against the dollar.<br /><br /><strong>FURTHER EXPANSION</strong><br />Last week&rsquo;s Inflation Report signalled that the Bank is in no hurry to unwind the monetary stimulus. Indeed, concerns about spare capacity in the economy may leave the door open for a further expansion of QE. To put this into context, even the &pound;175bn to which the Bank has already committed, means that debt purchases in the UK will amount to 13 per cent of GDP, compared to around 8 per cent in the US. Furthermore, inflation in the UK, although currently below target, is still high enough to leave us with negative real interest rates. Compare this to the US, the Eurozone and Japan, all of which are experiencing deflation. This level of laxity in UK monetary policy may yet prove unattractive for the holders of sterling.<br /><br />The combination of easy money and a worrisome level of government borrowing may be sufficient to derail the pound&rsquo;s recovery. Sterling&rsquo;s outlook for the rest of the year could prove as tricky as the 10-foot putt that Tom Watson left himself on the 18th at Turnberry.