The UK currency will continue to draw some support from the underlying improvement in UK economic indicators. Sterling will also draw important support if the underlying improvement in risk appetite is sustained. There are still very important underlying stresses within the economy and only a small shift in sentiment towards the UK debt position could trigger heavy renewed selling pressure. Nevertheless, overall confidence should remain firm in the short term with a potential move to 1.52 against the dollar.
Sterling moves were dominated by international trends on Monday, especially with the UK markets closed for a holiday. The UK currency was unable to sustain gains beyond 0.89 against the Euro and retreated to around 0.8935 in Europe. Sterling pushed to challenge important resistance levels near 1.50 against the dollar and was continuing to probe these resistance levels in US trading.
The trends in risk appetite will remain very important for the currency with a particular focus on the banking sector. Sterling will be vulnerable to renewed selling pressure if fears over the global banks increase ahead of Thursday€™s stress test results.
There will be strong expectations that the Bank of England will keep monetary policy unchanged in the short term and there is a reduced chance of a move to increase the amount of quantitative easing which should curb selling pressure. The UK currency was again testing resistance levels above 1.50 against the dollar in early Europe on Tuesday. The construction PMI index rose to 38.1 in April from 30.9 previously which will maintain the more optimistic tone in the short term.