Tuesday December 21, 2004 - 11:06:38 GMT
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INVESTICA Ltd - www.investica.co.uk
The housing data will unsettle Sterling to some extent, although caution is needed during the less important winter season. There will also be concerns over the budget situation and there is likely to be greater concerns over longer-term Sterling fundamentals, potentially weakening Sterling next year. Sterling should gain support from interest rate trends, but strong buying appears unlikely. Overall, Sterling will still find it difficult to sustain a move above the 1.95 level against the dollar.
Sterling was hampered by disappointing data on Tuesday and the UK currency was further undermined on Tuesday by a weak reading on housing prices. Sterling weakened to 0.6890 against the Euro and also failed to hold above 1.94 against the US currency, dipping to 1.9350 and beyond 0.69 after the data.
The RICS housing price index recorded a reading of -48 in the three months to November from -40 the previous month, the worst result for 12 years. This will maintain expectations over a slowdown in the housing sector and will hurt Sterling, although it does not give an indication of how fast prices are falling. There is likely to be increased concern that the Bank of England will face the combination of weakening activity and rising inflation. This combination would be a very destabilising medium-term influence on the UK currency, especially in view of yesterday's poor budget figure.
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