You can do it like this:

Creating temp table and inserting test values

create table #temp

(Receipt_key varchar(10),

Item_key varchar(10) ,

Position int);

insert #temp

values

('0001','02654',NULL),

('0001','35544',NULL),

('0002','02654',NULL),

('0002','85466',NULL),

('0002','84945',NULL)

Final update statement

WITH upd_recs

AS (SELECT Receipt_key,

Item_key,

Row_number()

OVER (

partition BY Receipt_key

ORDER BY Receipt_key, Item_Key) rnk

FROM #temp)

UPDATE #temp

SET Position = rnk

FROM upd_recs a

INNER JOIN #temp b

ON a.Receipt_key = b.Receipt_key

AND a.Item_key = b.Item_key

Hope this is what you are looking for?