The economic data is liable to remain mixed in the short term with firm evidence from the housing sector offset by the poor data elsewhere. The net evidence continues to suggest that there will be a greater market reaction to negative news with very weak underlying confidence in the economy due to a continuing focus on government debt fears and the lack of credit availability. There will also be fears over a credit-rating downgrade. Overall Sterling is liable to hit further selling pressure above the 1.60 level against the dollar.
There will also be caution ahead of Thursday’s Bank of England policy meeting. Markets will be expecting the central bank to hold policy steady, but there will still be a reluctance to hold long Sterling positions ahead of the meeting.
As Sterling confidence wilted it remained trapped below 1.60 against the dollar and also dipped to re-test support close to 0.92 against the Euro. With the US currency under pressure on Tuesday, Sterling edged back to the 1.60 region.
The Halifax house-price index recorded a further 1.6% monthly increase for September, butt he industrial data was sharply weaker than expected with a 2.5% decline for August which will maintain fears over the industrial sector. This data pushed the UK currency back to below the 1.60 level against the dollar.