Sterling fell heavily against a basket of currencies yesterday as a combination of broken technical barriers and decreased global sentiment for risk weighed.

As I made clear in our video broadcasts on Friday and Monday we believed that dollar was oversold in the short term and a correction against the pound was due. The failure to break 1.70 was also a strong confirmatory sign.

With a lack of data and stock markets sliding lower around the globe it was a sure sign that the USD would enjoy a day in the sun. The one thing that currency traders are worried about at the moment is the possibility of a big change in the landscape. The recent dollar weakness has been due to stock market rallies, a softening of the global aversion to risk and worries over an exit to the Fed’s fiscal policy. However Friday saw great data stoke the dollar’s fires with other risky assets (AUD, NZD) staying strong too.

In other words we could be seeing a break down in the relationship of risky assets up / dollar down and vice versa as the need for haven flows diminish. With the belief that the Fed may hike rates earlier than expected a dollar rally could come quickly and with a lot of momentum behind it.

In data, RICS house price showed that estate agents and surveyors were the most optimistic they had been for the housing market since it peaked in 2007. The data however did not confirm that house prices were rising unanimously as only 13% of members surveyed reported increases against 23% reporting declines. Other things to look out for today include UK Trade Balance (09.30) and US Wholesale Inventories (15.00).

You can also follow us live on Twitter at http://twitter.com/World_First