NEWS / Foreign Exchange

Daily FX Commentary

CBI survey unsettles Sterling

Global market conditions were slightly calmer on Tuesday with Sterling moving higher to highs around 2.0440 against the dollar as global equity markets stabilised. The 2.0250 - 2.0300 band against the dollar will be important as Sterling has consistently found support in this range during October. Any drop below this range would undermine confidence.

A sustained rise in risk aversion would tend to unsettle Sterling, especially as there will be an increased risk of investment outflows from the UK and a reduction in carry trades. There has been further speculation over a cut in UK interest rates despite the firm third-quarter GDP data released last week and this speculation has unsettled Sterling.

The CBI industrial survey recorded a significant deterioration with the October orders component weakening to -6 from +6 the previous month with business optimism at the lowest level for 20 months. The housing-sector evidence is likely to remain crucial over the next few weeks as a whole.