The short term technical outlook is positive despite today's weakness. Overcoming the growth data blip was a major development from a sentiment viewpoint, showing that the market is paying less attention to negative newsflow. "What should go down and doesn't go down can only go up" is a favourite market proverb that fits the picture. However, there can be no guarantee that sterling will continue to rise, and the best advice we can offer is to cover half of any euro requirement now, and take a "wait and see" approach on the balance. If you are selling euros, you may want to consider covering your trade now to avoid the risk of further upside in the exchange rate. We are still trading relatively close to the lows, and the risk appears to be to the upside in the short term.

The pound has enjoyed a strong rebound over the last week, sparked by comments from BoE member Paul Fisher, pushing the prospect of further quantitative easing ("QE") on to the back burner. The heat was further reduced after the minutes from the October BoE meeting were released on Wednesday, showing that all nine members of the committee voted to keep QE on hold. That gave the pound another boost, giving us a four cent improvement since last week's low. BoE members were hung up on the idea that increasing QE could help to stoke higher inflation in 2010. This latest news has shifted the balance of the debate towards the possibility that the UK is now winding down the liquidity splurge as conditions gradually improve. UK Retail sales data for September were slightly lower than expected, but showed a 2.4% year on year increase, enough to keep sterling's rally on the rails.

The technical outlook has improved considerably. We may well have a low in place, and from here we do expect a period of consolidation to set in soon, but ultimately the pound looks set to trade higher over the coming weeks. We would only become concerned again if the market returns to 1.0800 or below.

Sterling is enjoying its largest one day gain against the Euro in well over six months after bullish comments from Bank of England policy maker Paul Fisher noting that quantitative easing is working well. The scene was already set for some sort of rebound after better than expected jobless figures yesterday. The Fisher comments sparked some further interest in the pound, and the rally gained traction as a full blown "short squeeze" developed over the course of Thursday morning. A short squeeze happens when speculators who have sold the pound in expectation of further declines are forced to re-buy the currency to close their bets and stem losses. This situation can develop with little warning when large numbers of traders are caught "offside" when a market turns.

There is still some debate over whether the BoE may extend so called "QE" at the November meeting, but traders will be focussing on next week's release of the October meeting minutes to get a real view of how that debate is looking inside the BoE.

The technical outlook improves if we can sustain this bounce into the end of the week, especially if we can capture the resistance levels at 1.10 and 1.1135. Calling the bottom for sterling is very much a case of trying to "catch a falling knife", or "fridge" as one trade put it last October. Not advisable! Direction will be easier to call when we have a tradable low in place. We are feeling more positive about today's rally, but sterling is not out of the woods yet.

Sentiment towards the pound improved marginally as traders started to look forward to this month's Bank of England meeting this Thursday, with the all important quantitative easing package expected to remain on hold at £175bn; but that sentiment is overshadowed by the expectation that there may be an extension in November, leaving a cloud hanging over the market in the meantime. That may make it difficult for sterling to stage any sustainable rally in the short term. Data flow was mixed last week. The IMF upgraded its 2010 growth forecast for the UK (to 0.9% from 0.2%), but soft manufacturing data for September surprised to the downside as market watchers expected better figures off the back of higher exports. The CBI's retail sales figure was better than expected, and the final revision to Q2 GDP saw an improvement to - 0.6% from previously published -0.8%. Comments from ECB chief Jean Claude Trichet suggested that the Euro's strength was starting to impact their economic recovery. "Excessive volatility and disorderly movement in exchange rates has adverse implications for economic and financial stability". The UK is Europe's largest trading partner, with the US coming second. The Euro has appreciated sharply against both sterling and the dollar in recent months, making European goods more expensive/less competitive to foreign buyers. At some point over the coming months the strong Euro will become a bigger story in terms of the threat it poses to the euro zone recovery. However, until the ECB make more hawkish noises, markets are likely to focus on the Bank of England's outright endorsement of a weaker pound. On a 6-12 month view we see things rebalancing in favour of sterling, but in the short term the odds favour further downside. Clients with Euro requirements should look to cover half at these levels.

Sterling declined another 2 cents since last week's special update. Mervyn King's comments expounding the benefits of a weak pound continue to weigh on the market, giving traders little comfort in holding the currency. In other news, commentators are speculating that the Bank of England could introduce negative interest rates on bank deposits held at the central bank. By penalising the banks for holding large cash reserves the BoE would hope to stimulate bank lending and improve the pace of economic recovery. The downside for sterling however, is that such a move would likely prompt a fall in interbank interest rates (as there would no longer be an interest rate advantage to holding cash), making sterling even less attractive. The Swedish Riksbank has already done exactly that, pushing market interest rates down to just 0.25%.

Sterling traded below 1.08 before the London open Monday, recovering to end the session unchanged. Some analysts are predicting parity with the Euro by year end, which would mean another 8% downside in the exchange rate. The technical outlook remains negative, and the nearest noteworthy support level is around 1.05, the levels we bounced from back in January and March.

Sterling plunged this morning, spooked by a series of negative news reports and comments from Bank of England governor Mervyn King saying that sterling weakness was "helpful" in rebalancing the UK economy. We have been hinting at the BoE's implicit approval of sterling's slide for the last few weeks, and now they have come right out and said it ! The comments are extremely unhelpful for the pound, which was just starting to gain a little traction yesterday following the release of the most recent BoE meeting minutes which showed that all nine members voted to keep the central bank's assets purchase programme (otherwise known as quantitative easing) on hold at £175bn. King's comments have overshadowed the relief rally that we saw yesterday, sending Sterling crashing through the key 1.10 level to a new five month low. If we fail to recover the 1.10 level today, there is every chance of a continued decline back towards the 1.0500 - 1.0550 area that marked low points in late January and March. The technical outlook is bleak, and would only be improved by a quick rebound above 1.1127 (yesterday's high).

We advise clients with Euro requirements to cover at least half now to reduce the risk of further downside.

Sterling rallied this morning after the minutes of the last Bank of England meeting revealed that all nine members of the MPC voted to keep the central bank' asset purchase programme on hold at £175bn. It was the revelation that three members voted for a larger increase at last month's meeting that helped send the pound sharply lower. This morning's news has provided some relief to the pound, although it's too early to say whether this signals a sustainable reversal in the market.

The Sterling/Euro rate has spent the last couple of days testing key technical support at 1.10, so a strong bounce from here could help turn the tide. However, we are still advising caution from these levels, as many analysts are once again calling for a further drop towards parity over the coming months. Clients with Euro requirements should consider placing a stop order below 1.10 (based on the interbank rate) to protect against a resumption of weakness.

Things were starting to look better for Sterling late last week as the latest Bank of England decision reassured investors. The lack of any further quantitative easing gave traders a reason to buy the pound for once. Unfortunately that reason was removed yesterday as BoE governor Mervyn King gave another gloomy update in his quarterly inflation report. Labelling the durability of the recovery as "highly uncertain", he indicated that further easing could be in the pipeline. Inflation figures for August were slightly higher than expected, but this failed to offset the comments.

Sterling has now decisively broken below key trend support at 1.14, and there is no notable support until the 1.1050 - 1.1000 area. The revival of the QE spectre is likely to continue to dog the pound leading up to the release of September's Bank of England minutes on 23rd September. We advise Euro buyers to consider covering their requirements now to avoid further downside.

Sterling jumped today after the Bank of England left interest rates unchanged at 0.5% and made no further increases to the quantitative easing programme. The pound has been on the back foot since last month's central bank meeting at which they raised QE from £125bn to £175bn. The minutes of that meeting showed that three of the nine strong committee actually voted for a larger increase, putting the markets on notice that further increases were likely. More QE means more money in the system, effectively devaluing the pound against its peers. Traders reacted with relief, bidding the pound higher in the short time since the noon announcement. We will have to wait a few days for publication of the minutes of today's meeting to show how last month's 6-3 skew may have changed.