Confidence in the UK economy can remain firmer in the near term, but there are still very important risks which should not be ignored. Confidence in the housing sector is liable to weaken further and trigger an important negative switch in confidence surrounding the wider economy. Trends in risk appetite will remain important and markets look to be pricing in too much of an improvement. Any reassessment of the global financial risk would increase the risk of fresh selling pressure on Sterling. Given the domestic and international risk profile, selling GBP/USD on any approach to 1.60 looks the best strategy.
Sterling has continued to advance and take advantage of the US vulnerability over the past 24 hours with a high just above 1.5950 against the dollar in Europe on Tuesday.
The construction PMI index weakened to 54.1 for July from 58.4 previously which was a 4-month low and will maintain a degree of unease over the housing sector.