Sterling will remain volatile as interest rate expectations continue to fluctuate. The UK currency will gain some support from any easing of risk aversion.

The UK currency remained weaker on Friday with a corrective retreat to below 1.61 against the dollar after sharp gains over the previous 48 hours. Sterling also failed to hold the best levels against the Euro.

There were no significant data releases during the day which allowed interest rate expectations to dominate. There was increased speculation that the Bank of England could sanction a very sharp cut in rates of 1.00% to help stabilise economic conditions with strong expectations that rates will be reduced by at least 0.50% at the meeting. Any comments from MPC members will be watched very closely, especially as they may want to massage market expectations.

The UK currency initially pushed back above 1.6300 against the dollar on Monday as overall risk appetite recovered before retreating again as volatility remained very high. The PMI index for the manufacturing sector edged stronger to 41.5 in October from a revised 41.2 which may provide some slight relief. The services-sector data on Wednesday will probably be important for markets and the bank given its importance for the economy as a whole.