Sterling rallies will continue to attract selling pressure in the short term

The 1.9650 level will remain an important technical level for the UK currency as it was the low seen in August when the initial phase surrounding the sub-prime crisis erupted. Sterling found further support towards 0.75 against the Euro.

Sterling held its ground on Tuesday despite a weaker than expected retail sales report. The British Retail Consortium (BRC) reported that like-for-like sales were at a three-year low of 0.3% for December which reinforced fears over a slowdown in consumer spending.

Sterling did receive a boost following a reported 1.3% increase in house prices for December according to the Halifax Bank. The data will ease immediate fears over the housing sector to some extent and could deter speculation over a rate cut this week, although the decision will still be very close. There may only be a temporary respite as the overall fundamentals are liable to deteriorate.