The UK data and gilt auction will provide some initial Sterling protection. There are still very important risks surrounding the massive rise in public debt. There is also a significant possibility that there will be a much more serious deterioration in confidence which could put Sterling under heavy selling pressure. These risks will increase if fears over the UK and global banking sector return. In this context, selling rallies still looks the best strategy given the potential for a move to 1.43 against the dollar over the remainder of this week.

The UK currency secured strong support against the Euro later in the day with gains to near 0.89 and this also allowed Sterling to recover back to above 1.46 against the dollar even though the US currency was generally firm against European currencies. Primarily, this reflected stop-loss Euro selling once the 0.90 support levels was broken.

There will still be very important government debt fears which will limit the scope for Sterling support, especially with some independent commentary that the economy could face depression conditions. The latest gilt auction had a stronger bid cover which will provide some important support.

International trends were still important on Tuesday with Sterling weakening slightly against a firm dollar as there were also some renewed fears over the UK banks.

The UK data was stronger than expected with the CBI retail survey rising to +3 from -44 previously, although this figure is likely to have been distorted by seasonal considerations.