Sterling remained under pressure on
Wednesday, dropping sharply against the Euro to a lows around 0.69 and failing
to secure a significant recovery in New...

... York. The UK currency was also unable to
sustain any headway against the US dollar and weakened sharply to lows below
1.7150 as low liquidity helped trigger erratic moves and stop-loss selling.
There were also reports of merger-related flows out of Sterling and rumours of
central bank Sterling selling. The UK currency secured a fragile recovery in
early Europe on Thursday.

Interest rate considerations will
remain very important in the short term with further market expectations of a
cut in UK rates early in 2006. The data over the past week suggests firm
consumer spending and a small rise in house prices. This combination should
deter the Bank of England from a further near-term cut in interest rates. On
Thursday, there was a reported drop in
consumer confidence for December, but there was firm growth in mortgage lending
for November

Although Sterling sentiment will
remain weak, there will be the potential for a sharp correction given that
favourable news has been ignored over the past 24 hours. Erratic moves will
remain a high risk in the short term.

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