News from the construction sector told for sterling yesterday as the measurement hit the lowest reading since the survey was started in 1997. With the deluge of corporate earnings data from UK banks in the coming days sterling is in a precarious position. As a result we saw sterling lose ground against its major crosses and bearish sentiment pervade.

Dollar was allowed to strengthen as oil fell by over $5 to levels last seen in early May. Demand expectations have also being pared as some analysts believe the binge that China has been conducting is purely down to the imminent Olympic Games and that once the spectacle is over normality will return. The supply side is also seeing the effects of OPEC’s decision to increase supply recently as Saudi oil production now sits at a 25 year high.

Today we have Services PMI from the UK which will post in the contractionary range but as to how much opinion varies; sterling could be hurt further however. Today’s key event is of course the US rate decision at 19.15, we expect a hold as the Fed waits for the imminent slowdown to deflate the inflation bubble itself.

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