Fragile Sterling Correction

Sterling may retain a corrective tone in the near term, but will struggle to make strong headway as underlying sentiment towards the economy and currency remains weak.

The UK currency tested support close to 1.85 against the dollar on Friday, but found support close to this level and corrected higher to 1.8630 while Sterling also regained some ground against the Euro with an advance to 0.7875. Sterling had weakened for 11 successive days against the dollar and was therefore due for a technical correction stronger even though underlying confidence in the currency remains weak.

The latest data recorded a 24% annual increase in housing repossessions while the Rightmove house-price index recorded a 2.3% decline in August for a 4.8% annual decline. The housing data and downbeat BCC survey will maintain fears over the economy as a whole, although the immediate impact will be limited as a substantial deterioration has been priced in

The Bank of England will again be an important focus this week. Minutes from August’s MPC meeting are due on Wednesday and these will be important for interest rate expectations as underlying pressure for lower rates continues to increase. Markets will also stay on high alert for comments from bank officials following the shift in interest rate expectations. Sterling edged stronger towards 1.87 against the dollar on Monday on a wider correction for the US currency.

Investica
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