Sterling has continued to benefit from an improvement in confidence surrounding the banking sector. The stabilisation has eased immediate pressure on the UK financial sector while the improvement in risk appetite has also boosted sentiment. Reaction to US plans to help cleanse the US bank balance sheets will be very important for confidence. Treasury Secretary Geithner€™s last news conference on the banking proposals was a disaster and lessens will have been learned from that, but it will still be difficult to meet expectations. Overall, Sterling is liable to stall around the 1.4650 level against the dollar.
Sterling edged stronger against the Euro during Friday and settled just stronger than the 0.94 level. There were no major economic data releases, but the latest car output data recorded an annual decline of over 60% in the year to February which will reinforce short-term fears over the industrial sector with increased pressure for further government support.
The comments from MPC members were more supportive with recent addition Dale stating that the economy was likely to resume growth later in 2009. The comments from Bank of England Governor King will be watched very closely on Tuesday for further evidence on the economic trends and bank policies with a pessimistic tone risking renewed Sterling selling.
A key supportive factor is still the major difficulties elsewhere in the major G7 countries, especially after the Fed shift to quantitative easing. The UK currency rallied back to above 1.46 against the dollar on Monday with improved risk appetite also a supportive factor.