Sterling will look for a further limited correction stronger, but confidence will remain fragile

Sterling remained firmly on the defensive during Thursday with fresh record lows near 0.7485 against the Euro. The UK currency also dipped to lows near 1.97 against the US dollar and was unable to sustain a limited recovery. Sterling remained under pressure against major currencies on Friday with a test of support below the 1.97 level against the dollar before a recovery after the data releases.

The PMI index for the services sector rose to 52.4 in December from 51.9 the previous month. There was also a stronger than expected reading for net consumer lending over the month while December mortgage approvals fell to 83,000 from 89,000 the previous month.

The data is certainly not strong and still suggest an important overall slowdown, but there will be some relief that there was no further deterioration for the month.

There will still be strong expectations of an interest rate cut during the first quarter. Speculation over a January cut is liable to fade slightly which will tend to encourage at least a limited Sterling correction.