Wednesday January 12, 2005 - 11:40:26 GMT
INVESTICA Ltd - www.investica.co.uk
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Trade data fails to benefit Sterling
The better than expected trade figures should have offered some near-term relief for the UK currency and it is also unlikely that the Bank of England will decide to cut interest rates at the meeting starting today. The longer-term Sterling fundamental concerns will however persist which will limit Sterling rallies and the initial reaction has been disappointing. Overall there is still the medium-term risk of a move to 1.8550 against the dollar.
Sterling was unable to recapture levels beyond 1.88 against the US currency and weakened to 1.8710 against the dollar in early Europe on Wednesday. Sterling held close to 0.6990 against the Euro.
The November trade deficit narrowed by more than expected to GBP4.6bn from GBP5.0bn in October. The EU trade deficit narrowed to its lowest level since May 2003. The underlying trend is still for a deterioration, but the data will at least offer some near-term relief.
The Bank of England monetary meeting will start today with an announcement on Thursday and the most likely outcome is that the central bank will decide to keep interest rates unchanged. The markets are probably over-optimistic over the chances of a near-term interest rate cut and this should also lessen the near-term threat of Sterling losses. The longer-term fundamental concerns will persist.
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