The recent UK data has suggested some stabilisation in the housing sector. There has also been evidence that the economy can out-perform the Euro-zone. The massive budget deficit will come into much greater focus ahead of the annual budget statement next Wednesday and a deficit above 10% of GDP remains a big red flag for Sterling. Momentum can carry it higher initially, but there is likely to be renewed selling from late this week and levels near 1.52 against the dollar would look attractive selling opportunities.
Sterling retained a firm tone during Tuesday with the currency strengthening to a six-week high against the Euro at near 0.8890. The UK currency also challenged resistance levels above 1.49 against the dollar and pushed to a high above 1.50 in Europe on Wednesday.
Concerns over the Euro-zone economy should continue to underpin Sterling in the short term, especially after recent complaints from European countries that the Euro is over-valued. The latest UK RICS data was also stronger than expected for March with increased buyer interest although 73% of surveyors still reported that house prices declined in the latest month.
The UK fiscal conditions will still be watched very closely ahead of next week€™s annual budget and fears over the debt outlook will tend to restrain Sterling. The budget deficit is liable to be over 10% of GDP for the current fiscal year which will certainly limit the scope for any further fiscal measures to support the economy.