Sterling remained on the defensive against the Euro with losses to beyond 0.6970 on Wednesday, but Sterling found support close to 1.78 against the dollar as the US currency failed to hold gains. Sterling strengthened to a high just over 1.7905 in New York before a retreat to 1.7850. Sterling has been unsettled slightly by political considerations with the government having significant difficulties and this will tend to undermine the currency slightly, although a substantial impact is unlikely. Sterling was drifting slightly weaker in early Europe on Thursday ahead of key US developments later in the day.
International interest rate considerations will be important and the increased speculation over US rates pushing above the 5.0% level, coupled with a tough stance from the ECB, will tend to undermine Sterling. These currency pressures will increase if there is further evidence that the UK economy is underperforming relative to the US and Euro-zone with UK consumer confidence data on Friday. The UK economic performance is unlikely to be strong enough to offer robust Sterling support. The UK currency will, however, gain some backing from the underlying strength of oil prices.
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