The Bank of England minutes will provide some near-term protection to Sterling. Underlying confidence in the UK economy is still liable to deteriorate with increased fears over the debt outlook and increasing doubts over the medium-term growth outlook. The UK currency will also continue to be influenced strongly by degrees of risk appetite and the risk of selling will be much higher if overall confidence in the global economy deteriorates. Overall, Sterling is liable to edge weaker towards the 1.62 level against the dollar over the next 48 hours.
Bank of England Deputy Governor Bean stated that second-quarter GDP was also certainly negative. Markets will remain very sensitive to growth considerations as any evidence that a recovery is stalling would reinforce debt fears and increase downward pressure on the currency.
Sterling was unsettled on Wednesday by reports that the banking sector would require further capital and by a gloomy assessment of medium-term prospects by the NIESR. The MPC minutes were watched closely on Wednesday with the Bank of England recording a 9-0 vote for unchanged interest rates and no changes to the quantitative easing programme
The bank was slightly less pessimistic over near-term economic prospects which provided some near-term support for Sterling, but underlying confidence is still liable to deteriorate.