Housing Doubts to Unsettle Sterling

Domestic economic doubts are liable to increase over the next few weeks with particular reservations over the housing sector following recent data. This will represent a growing threat to Sterling as recent optimism is liable to be mis-placed. Global risk trends will also be important for the UK currency and it will be difficult to extend the mood of optimism given the headwinds. Market confidence can remain firmer in the near term, but there looks to be a good selling opportunity close to 1.5650 against the dollar given the important threat of a deteriorating UK economy with a retreat to at least 1.5550.

Sterling continued to find firm support on Wednesday and proved resilient in the face of Bank of England comments which suggested that there would be no near-term increase in interest rates.

Thursday's economic data was weaker than expected with mortgage approvals at the lowest level since February. The consumer lending data was also weaker than expected with a net decline in consumer credit. The Nationwide also reported a 0.5% decline in house prices for July.