A string of poor data releases is likely to keep Sterling under selling pressure in the short term.

Sterling staged a limited recovery in European trading on Wednesday, but was then subjected to renewed selling pressure later in the day. The UK currency failed to reach 1.85 against the dollar and retreated to test fresh 2-year lows below 1.8300. Sterling also weakened to 0.8025 against the Euro as the trade-weighted index dipped to a fresh 12-year low.

Overall sentiment towards the UK economy remains very weak due to underlying recession speculation and this is contributing to further Sterling selling. Yield spreads against the Euro also narrowed to the lowest level for 7 months during the day. The UK currency remained under pressure in early Europe on Thursday with tentative evidence of rising wage settlements not having a major initial impact.

The latest Nationwide house-price survey recorded a further 1.9% decline for August to give a 10.5% annual drop which will reinforce housing fears. The latest CBI retail survey also recorded a net reading of -46 for August from -36 the previous month, reinforcing already very negative sentiment towards the economy. Sterling was trapped below 1.84 against the dollar and dipped back towards 1.83 after the retail sales survey.