Trends in risk appetite will remain important in the short term and Sterling will be more vulnerable to selling pressure when risk appetite deteriorates. This will be particularly important if there are stresses within the banking sector. A prolonged period of uncertainty would be very damaging as it would reinforce fears over a double-dip recession and would also cause major uncertainty over an interest rate increase with the Bank of England not in a position to tighten policy. There will still be some important protection from a lack of confidence in the Euro-zone and US fundamentals. Overall, there is likely to be further near-term selling above 1.51 against the dollar and support in the 1.50 area is likely to be broken with a move towards 1.4880.
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