Sterling volatility will remain high in the short term with moves likely to be correlated strongly with the performance of UK banking shares with the potential for a further correction stronger. Underlying confidence in the economy will remain weak.
Sterling remained under pressure on Friday and weakened to a fresh 23-year low near 1.35 against the dollar. Sterling also dipped to three-week lows around 0.9470 against the Euro following the UK data. Overall confidence in the economy will remain extremely weak in the short term, especially with budget fears increasing.
There will still be some scope for a correction from over-sold conditions, especially after a weekly decline against the dollar of close to 8% and Sterling recovered back to near 1.38 later in US trading.
Given the lack of confidence, rallies quickly attract selling pressure and Sterling retreated again towards 23-year lows on Monday with a test of support below the 1.36 level in early Europe. These was a rebound to above 1.38 later in European trading as UK banking shares rallied sharply following a public trading statement from Barclays