Sterling confidence will remain weak in the short term, buy firm retail spending reports may provide temporary relief.

From record lows against the Euro at the end of last week and seven successive daily losses, the UK currency was able to secure a significant technical correction on Monday with a move to 0.7325 from 0.7385 before settling around 0.7355 in choppy trading. Sterling strengthened to two-week highs near 2.01 against the dollar before a very sharp retreat to below 1.9850 in volatile trading as liquidity dipped sharply.

The UK currency suffered renewed losses against the Euro on Wednesday with fresh record lows while the UK currency was also unable to hold gains to near 1.99 against the US dollar.

Trading statements from UK retailers will be watched closely in the short term. Any evidence of firm UK consumer spending during the holiday period would provide near-term currency support as it would tend to discourage another near-term interest rate cut by the Bank of England.

Overall Sterling confidence is, however, likely to remain fragile on growth fears with funds shying away from the currency. The PMI index for the manufacturing index fell to 52.9 in December from 54.4 which will reinforce expectations of a growth slowdown, although the services-sector index will be more important on Friday.