Sterling moved to fresh 5 month lows against the euro and US dollar whilst also extending losses against all other competing crosses as fresh concerns over the viability of the recovery of the UK economy reared their head.

Yesterday we spoke of the news from the CEBR which saw UK interest rates not rising above 2% until 2014. Another leading business partner, the British Chambers of Commerce, have warned that the recovery in the UK is increasingly fragile and something that may seem as an annoyance, such as the Royal Mail strike problems, may be only catalyst needed to tip the UK back into recession.

While news from the UK was weak, data from elsewhere allowed currencies to build on recent positions. USD was helped by the price of crude falling after 3 consecutive days of rises whilst ECB speakers gave upbeat assessments of the European economic performance of late.

After the relative calm of yesterday we do expect a more frantic market today. We welcome Japanese, American and Spanish participants back to the market after bank holidays locally and given the move into Q3 earnings season in the US equity markets should be the focus of most.

Data from the UK comes in the form of CPI today. Inflation in the UK has been ‘sticky’ in recent months: staying at elevated levels despite efforts to prise it lower. Should those efforts succeed however we would expect GBP to further weaken as the prospect of more QE after next month’s inflation report from the Bank of England. RICS house price has already been released and has been positive for the pound but I doubt any upward movement will last.

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