Overall trend for the Pound remains lower. Expect volatility ahead of the UK elections. Commodity currencies continue to benefit (AUD, CAD, ZAR).

Todays Ranges: GBP/USD 1.4875-1.5013     GBP/EUR 1.0956-1.1031    EUR/USD 1.3547-1.3623

 Current levels: GBP/USD 1.4950     GBP/EUR 1.0984     EUR/USD 1.3612

Political uncertainty about a hung parliament and worries about Britain's sovereign ratings after Fitch Ratings agency on Tuesday highlighted the country's deteriorating credit profile have conspired to weigh on the currency.

"The outlook for sterling over the short term remains incredibly uncertain both in terms of fiscal policy and monetary policy," said Paul Robson, currency strategist, at RBS in London. "Sterling downside still has some way to go."

Traders reported sterling selling vs the dollar coming from Middle Eastern accounts.

Due at 0930 GMT, UK industrial output is seen rising 0.3 percent on the month, slowing from a 0.5 percent increase in the previous month. Manufacturing output is also seen rising 0.3 percent on the month, slowing from a 0.9 percent increase previously.

"In the current sterling sceptical market sentiment, there is probably not much room for a negative surprise," said KBC analysts.

"The technical picture for GBP/USD still looks very heavy with the pair again below the 1.50 mark.

The dismal UK trade data has ensured the Pound remains under early morning selling pressure. Another factor is potential downgrade of some of the UK’s banks. Until the election is over, the Pound will remain `suspect’. All points to a stronger USD, as Greece will struggle to get its finances in order and is pressing for curbs on financial speculation which it partially blames for worsening the countrys debt crisis. The issue will probably be raised at the next G20 meeting.

Oil $ 81.40     Gold $ 1123    

Stock Markets:  Dow +0.1%     FTSE -0.1%     Nikkei – Flat

The Royal Institution of Chartered Surveyors said its monthly house price balance dropped to +17 in February from a downwardly revised +31 in January, a much bigger fall in the seasonally adjusted index than any of the 11 economists polled by Reuters last week had expected.

February's decline is the sharpest one-month fall in the balance since April 2008, the data showed.

By 0848 GMT, sterling fell 0.4 percent at $1.4995 after dipping to a session low of 41.4976. It had fallen to a 10-month low of $1.4781 last week.

"Sterling sees support near $1.4975 today. A break of this level opens downside potential to $1.4590," analysts at BNP Paribas said in a research note.

The euro rose 0.3 percent to 90.75 pence .

Moody's Investors Service said on Tuesday it would start phasing out "extraordinary" support assumptions it had incorporated into its senior debt and deposit ratings for a number of financial institutions.

It said once these were withdrawn, this could mean senior debt and deposit rating downgrades for some financial institutions if they have not improved their standalone strength to offset the phasing out of government support.

"How and when we reduce the support assumptions incorporated into the senior debt and deposit ratings of the banks will depend upon a number of factors, including the importance of the bank and the pace of the recovery of the UK economy," it said in a report.

The pound's moves are often influenced by the UK banking sector, whose fortunes are seen tied to the health of the broader economy.

The prospect of a hung parliament after a general election expected in May has also been weighing on sterling. A hung parliament is seen struggling to deal effectively with Britain's ballooning fiscal deficit.

Latest polls on Tuesday indicated a close contest, with a poll in the Times newspaper showing the gap between the two main parties in key marginal seats has closed.

Outgoing Bank of England policymaker Kate Barker said late on Monday Britain's economic recovery was likely to be unsteady, though for now it looks on track after favourable employment data and a return to growth late last year.

The greenback had come under broad selling pressure after above forecast U.S. payrolls data Friday prompted demand for riskier assets.

But risk appetite could not be sustained through the European morning, leaving the focus back on structural and political issues affecting the UK economy.

"Risk appetite has waned over the morning and sterling has come back down versus the dollar. There is much uncertainty about where power would go in a hung parliament and together with the need to tackle the budget deficit, sterling can weaken further over the coming months." said Jane Foley at FOREX.com.

At 1210 GMT, sterling  was trading back to flat against the dollar at $1.5135 after initially moving to a high of $1.5197. The pound had slumped to a 10-month low last Monday as the threat of a hung parliament and economic uncertainty dented sentiment.

The euro strengthened slightly versus sterling to trade up 0.2 percent at 90.25 pence.

The prospect of a hung parliament after an expected general election in May has been weighing on sterling in recent weeks, as opinion polls showed the opposition Conservative party's lead narrowing.

A hung parliament is seen struggling to deal effectively with Britain's ballooning fiscal deficit.

Latest polls from the weekend showed a slight reversal in the Conservatives' favour, but analysts said it would likely still be a closely fought election.

"After last week's shock narrowing in the UK election polls, the readings this Sunday simply confirmed that it remains a close run fight between the two largest parties," said BNYM strategists in a note.

The threat of further asset purchases from the Bank of England to try and stimulate growth in the UK economy was also likely to weigh on the pound.

"The outlook for the UK economy is still very challenging indeed. There's still a chance the BoE will restart their asset purchases, which would be sterling negative" said RBS currency strategist Paul Robson.

It is a relatively quiet data week in the UK, with the latest RICS house price survey due on Tuesday, followed by manufacturing data Wednesday.   

At 1210 GMT, sterling was trading back to flat against the dollar at $1.5135 after initially moving to a high of $1.5197. The pound had slumped to a 10-month low last Monday as the threat of a hung parliament and economic uncertainty dented sentiment.

The euro strengthened slightly versus sterling to trade up 0.2 percent at 90.25 pence.

The prospect of a hung parliament after an expected general election in May has been weighing on sterling in recent weeks, as opinion polls showed the opposition Conservative party's lead narrowing.

A hung parliament is seen struggling to deal effectively with Britain's ballooning fiscal deficit.

Latest polls from the weekend showed a slight reversal in the Conservatives' favour, but analysts said it would likely still be a closely fought election.

"After last week's shock narrowing in the UK election polls, the readings this Sunday simply confirmed that it remains a close run fight between the two largest parties," said BNYM strategists in a note.

The threat of further asset purchases from the Bank of England to try and stimulate growth in the UK economy was also likely to weigh on the pound.

"The outlook for the UK economy is still very challenging indeed. There's still a chance the BoE will restart their asset purchases, which would be sterling negative" said RBS currency strategist Paul Robson.

It is a relatively quiet data week in the UK, with the latest RICS house price survey due on Tuesday, followed by manufacturing data Wednesday.   

British consumer confidence hit its highest in two years in February and people were their most optimistic about the coming six months since records began, according to a survey by Nationwide Building Society.

Trade was cautious, however, with a survey of UK services sector activity awaited at 0928 GMT , while all eyes will be on any announcement by Greece on planned austerity measures as the Prime Minister holds a cabinet meeting. A government source said Greece had decided on additional austerity measures of 4.8 billion euros.

Some traders and analysts also cited talk that Prudential's plan to buy AIG's  Asian life insurance business for $35.5 billion pounds may fall through due to concern that a steep fall in Prudential's share price may complicate the deal.

"A couple of things have supported sterling today - one is the Nationwide consumer confidence and the other is the report that the Prudential/AIG deal may fall through," said Christian Lawrence, currency strategist at RBC.

"The PMI data is awaited, but everything today will be about Europe and whether the market is happy with Greece's announcement," he added.

Prudential's shares rose 1.6 percent on Wednesday after dropping around 20 percent in the last two days.

At 0916 GMT, sterling rose 0.3 percent  to $1.5001, with traders citing short-covering after it dropped to $1.4781 on Monday, its lowest since early May last year.

The euro  was steady at 90.90 pence. On Monday it hit a four-month high of 91.50 pence.

"The pound now needs to sustain the overnight recovery back above $1.4980/1.5020 to try and stabilise in the first instance, in order to re-target the $1.5270 resistance area," said Michael Hewson at CMC Markets.

After earlier rising as high as $1.5077, the pound pulled back to hover around the $1.50 mark, with concerns about the prospect of an election expected in May resulting in a hung parliament continuing to weigh.

The pound's recent falls came as opinion polls showed the opposition Conservatives' lead was shrinking, increasing the risk that no one party will have a clear majority.

This has raised concerns that any incoming government may not be able to take the harsh measures needed to cut the UK's ballooning budget deficit.

Investors were also cautious ahead of a Bank of England policy decision on Thursday, although the central bank is not expected to make any change to interest rates or to its quantitative easing policy.

UK surveys overnight were mixed, with one showing an improvement in the UK jobs market  and another showing an easing in British shop price inflation