There is likely to be increased concern that any UK economic recovery will stall. These fears will also tend to trigger renewed fears over the UK budget and debt outlook. Degrees of risk appetite will also be very important as any sustained deterioration would tend to weaken Sterling directly and also increase fears over the domestic debt outlook. Volatility will remain an important risk and the overall risk profile suggests further Sterling losses, especially now the 1.62 support region against the dollar has been broken, with the potential for further losses to 1.5930 this week.
The UK currency rallied to 1.6425 against the dollar in early Europe on Friday, but was unable to break any significant technical levels and weakened back to test support levels near 1.6320 during the day. Sterling moved marginally weaker against the Euro, although there was firm support close to the 0.8585 level.
There was a further net repayment of mortgage debt by households in the first quarter, illustrating the fact that it will be difficult to secure any support from consumer spending as savings levels are increased.
There will be speculation that the Bank of England will expand its bond-buying operations which will tend to unsettle Sterling ahead of Thursday€™s MPC policy meeting. Sterling dipped to lows around 1.61 against the dollar as domestic and international confidence dipped