Sterling Still Under Pressure

There will be major caution ahead of Thursday's Bank of England meeting given speculation over a rate cut, but there is scope for a fragile Sterling corrective recovery.

The government announced some measures to support the housing sector including a reduction in house-purchase tax for the next 12 months, but market sentiment remains extremely negative towards the economy and currency. Sterling dipped to a 30-month low below 1.78 as the dollar strengthened before consolidating just above this level.

There was no relief from selling pressure on Wednesday as consumer confidence remained trapped at four-year lows while the weakness was compounded by further selling of high-yield positions as the Australian dollar weakened further. The UK currency weakened further to below 1.77 against the dollar on Wednesday and remained near record lows against the Euro as underlying selling pressure continued.

The PMI index for the services sector rose to 49.2 in August from 47.4 previously which will provide some degree of relief over the economy and will make it slightly easier for the Bank of England to resist a near-term cut in interest rates. Underlying sentiment is liable to remain very weak in the short term with further interest in selling the currency

Investica
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