The Bank of England minutes will still tend to be a negative underlying factor for Sterling with expectations that the bank will maintain a highly-expansionary policy. There will also be fears over the government debt outlook following worse than expected data. Sterling will gain relief if improved global risk appetite can be sustained. Nevertheless, the net risks still point to a weaker UK currency given fears over the debt outlook. Sterling, remains a sell at levels above 1.6550 against the dollar.

Following the Bank of England minutes, Sterling dipped to below 1.64 against the dollar before finding support with reports of institutional buying support at lower levels. There was also support beyond 0.8620 against the Euro.

The headline CBI industrial survey remained very weak with a reading of -54 for August, although was some slight improvement in conditions. Government debt levels will also remain an important focus with confidence liable to deteriorate.

Trends in risk appetite continued to have an important influence as Sterling selling intensified when Chinese equity markets fell sharply. In contrast, the recovery in risk appetite helped the UK currency rally to highs above 1.6550 in New York trading.

The retail sales data was marginally stronger than expected with a 0.4% monthly increase for July. The government borrowing data, however, was substantially worse than expected with a GBP8.0bn monthly deficit. For the first 4 months of the fiscal year, the borrowing requirement rose to GBP49.8bn from GBP15.8bn. The borrowing data will reinforce underlying fears over the debt position and will provide a stern test of market confidence in the UK economy and currency.