Sterling Looks For Correction

Sterling looks to have scope for a significant corrective recovery against the dollar in the short term even though gains will quickly attract selling interest.

Risk appetite recovered on Monday following the US GSE bailout and this pushed Sterling stronger, but the UK currency was unable to sustain the advance against the dollar.

The UK currency weakened sharply against the dollar with fresh 30-month lows below 1.75 before a small correction as the US currency continued to punish European currencies. Sterling was little changed against the Euro near 0.8050.

The overnight UK data remained weak with the BRC reporting a 1.0% annual decline in like-for-like retail sales while the RICS reported that housing activity remained at a very low level even with some sign of stabilisation. The UK currency was trapped close to the 1.75 level against the dollar as the US currency remained robust.

UK industrial production fell 0.4% in July while there was a 0.2% dip in manufacturing output which will maintain the underlying lack of confidence in the UK economy, although the impact should be measured given the amount of deterioration priced in

Investica
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