Sterling pushed back to 1.8070 against the US currency in early Europe on Monday as
the...

... dollar came under pressure, but the gains were reversed later in the day and
Sterling weakened back to 1.7925 in New York, retaining a weaker tone in early
Europe on Tuesday. Sterling was unable to make any headway against the Euro and
weakened further after the UK data. Spending doubts will continue to unsettle
Sterling in the short term.

The latest CBI retail survey remained weak with the headline figure deteriorating to
a 7-year low and confidence over spending trends will remain weaker in the short
term, especially with rising energy prices. The Hometrack survey of house prices
released on Monday recorded a 0.2% monthly decline for August, the 14th consecutive
decline, and there was a 3.7% annual decline in prices. The data on Tuesday recorded
the slowest growth in mortgage lending since June 2002 while the increase in
consumer credit was lower than expected with an increase of GBP1.2bn, which was the
slowest annual increase since 2001. The lack of confidence in the housing markets
will continue to undermine consumer spending and restrain spending growth. This, in
turn, will tend to keep Sterling on the defensive as growth concerns are liable to
intensify again.

The latest IMM data recorded an increase in long Sterling positions, but the
positioning bias is modest at this stage. The data will slightly undermine the
potential for Sterling gains, but should not have a major impact.

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