Tuesday February 1, 2005 - 11:16:41 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling yield offers protection
Sterling dipped to just below the 1.88 level against the US currency during Monday and also failed to sustain push back above 1.8850 against the US currency. Sterling failed to strengthen beyond 0.69 against the Euro and weakened to 0.6935. Narrow ranges for the dollar should offer some small-scale support to Sterling on yield grounds, but the impact will be offset by disappointing UK data.
The UK CIPS index was weaker than expected with the manufacturing index weakening to an 18-month low of 51.8 for January from 53.3 in December. Sterling strength has eroded exports and there will be persistent medium-term concerns over the industrial sector. There was, however, a small recovery in mortgage lending and loan approvals for December. The net impact is slightly negative for Sterling.
The UK economic data on Monday was also mixed. There was an increase in consumer confidence for January, but the CBI reported a sharp decline in retail sales. The mixed pattern and market confusion is likely to continue in the short term, but markets will also expect interest rates to remain on hold for the next two months at least which will limit selling pressure on the UK currency.
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