The weak consumer spending evidence will tend to unsettle Sterling in the short term

Sterling was generally weaker in early Europe on Tuesday with selling pressure close to 1.99 against the dollar

The UK currency will still continue to gain some support from an increase in risk tolerances, especially with financial-sector fears at a reduced level, and there were also reports of merger-related support for Sterling.

Confidence in the economy as a whole remained weak and these underlying fears will certainly limit the scope for currency gains. The housing-related fears will continue and mortgage approvals fell to a record low of 64,000 in March from 72,000 the previous month.

The retail spending evidence was substantially weaker than expected. The CBI retail survey recorded a net balance of -26 reporting a drop in sales for April compared with a small net positive balance the previous month while the expectations component was also weaker. The data will reinforce fears over the outlook for consumer spending and the economy as a whole.

In response, Sterling weakened to near 1.9730 against the dollar and 0.7885 against the Euro.