The UK currency was unsettled to some extent on Monday by slightly more dovish sentiment from MPC member Sentance. He normally takes a tough policy approach and his comments that inflation should eventually decline dampened speculation that interest rates could be increased by the Bank of England over the next few months.

Sterling weakened to lows below 1.9600 as the US currency rallied following weak Euro-zone data, but recovered ground in US trading. The UK currency was holding steady against the Euro with European currencies as a whole generally on the defensive during the day.

Sterling edged higher to 1.9660 against the dollar on Tuesday and the UK currency will gain some support if there is increased investor interest in high-yield currencies. Underlying fears over the economy will continue to limit the scope for gains, illustrated by the latest housing data. The BBA data recorded a drop in mortgage approvals to 28,000 in from 34,800 the previous month and this was the lowest reading since records began in 1997 with a 56% year-on-year decline.