GBP/USD

Sterling:

Confidence in the economy will remain very weak in the short term with expectations of a further deterioration and deep recession. The near-term Sterling trends will also be influenced strongly by trends in risk appetite with a particular focus on the UK banking sector. The UK currency will come under further pressure if confidence in the sector continues to deteriorate while any reassurance over the banks could trigger a sharp corrective rally for the UK currency. In this environment, trading volatility is likely to remain at elevated levels with good buying support on retreats towards 1.35. The Euro looks to offer little short-term value above the 0.95 level against Sterling.


Sterling remained under pressure on Friday and weakened to a fresh 23-year low near 1.35 against the dollar. Sterling also dipped to three-week lows around 0.9470 against the Euro following the UK data. Overall confidence in the economy will remain extremely weak in the short term, especially with budget fears increasing

There will still be some scope for a correction from over-sold conditions, especially after a weekly decline against the dollar of close to 8% and Sterling recovered back to near 1.38 later in US trading. Given the lack of confidence, rallies quickly attract selling pressure and Sterling retreated again towards 23-year lows on Monday with a test of support below the 1.36 level before a rebound to above 1.37 as UK banking shares rallied.