Thursday November 4, 2004 - 11:05:05 GMT
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INVESTICA Ltd - www.investica.co.uk
UK housing data weak
The weak housing sector report will offset the firm data over the previous two days and curb Sterling support. The Bank of England is likely to keep rates unchanged today, but expectations that the next move will be a cut will still have to be revised slightly. Markets will wait for the inflation report next week for clearer indications of the bank's intentions. Sterling offers little immediate value above the 1.85 level against the US currency, but there will be a jump above 1.85 if there is a surprise rate hike.
Sterling strengthened strongly against the US currency as the US currency faltered on Wednesday and it pushed to near 1.85. Sterling was unable to strengthen through the 0.69 level against the Euro, weakening back to 0.6930. Sterling gained some support from rumours that the Indian central bank had been selling dollars and buying Sterling, but latest housing data weakened the currency later in Europe on Thursday.
The Bank of England will decide on interest rates today. The economic data over the past 48 hours had generally been stronger than expected, but the pattern was broken with the Halifax housing data for October as there was a 1.1% monthly price decline. Given the mixed evidence, there is a strong case for the bank to leave interest rates unchanged in the very short term to assess economic trends. Rates should be left at 4.75% today, although there will be a sharp temporary Sterling rise if rates are increased. The inflation report next week will be important to assess interest rate and medium-term Sterling prospects.
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