Investors were reminded yesterday that the UK economy is still weak after poor PMI data, which shows the economic situation in the UK services sector and condition of the sales and employment within the UK came in below the forecast level of 56.5. The figure came in at 54.5 for January which still shows expansion but it came in lower then December’s figure of 56.8.

Sterling was also dented by initial euro gains after Greece won backing from the European commission for its plan to cut its current fiscal deficit to below 3 percent of GDP by the end of 2012 without seeking outside help. The concern over Greece’s debts has over the last month weakened the Euro, but many analysts believe it may improve if Greece shows its plans to balance its books becomes viable. Sterling fell to a days low of €1.1402 at lunchtime.

Sterlings losses were short lived as separate figures showed a rise in UK consumer confidence to 73 in January which is nearly twice the figure it was a year ago.

All eyes will be on the bank of England policy decision today which will show the direction they will be going with their quantitative easing program, and if they will continue to hold interest rates at the current record low. Analysts believe that due to the still fragile UK economy any rises in interest rates are unlikely until much later in the year, and a positive step would be to pause its asset buying programme to allow tightening to its monetary policy.

The overall picture for sterling is still negative what with the uncertainty surrounding the pending general election in June and the current state of the economy.  We may see sterling become volatile after the central banks decision.

An end to QE could support sterling but it is more likely it will be paused until further BoE meetings, when it confirms that it has helped stimulate the struggling UK economy over recent months.

Elsewhere in Germany PMI data was released which showed a positive increase, this was closely followed by data released by the European Monetary Union which saw an increase in retail sales year on year.

In the US reports showed service industries grew in January to 50.5 from December’s figure of 49.8, and employment figures showed fewer companies cut jobs than was forecasted last month. It is becoming increasingly clear the US road to recovery is much stronger then Europe’s.

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