Wednesday March 16, 2005 - 11:11:51 GMT
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INVESTICA Ltd - www.investica.co.uk
UK rate expectations intact
Sterling retreated from levels above 1.92 against the US currency after the US data, but there was support close to 1.91 and Sterling strengthened to 0.6955 against the Euro. Sterling also rebounded back above the 1.92 level against the US currency in early Europe on Wednesday.
The headline earnings data was stronger than expected at 4.4% and the underlying rate was also at 4.4%. The claimant count for unemployment fell by 700, but the wide measure of unemployment showed an increase. Overall, the labour market remains tight and this will maintain pressure for a further rise in interest rates to curb domestic inflationary pressure. Domestic yield expectations should offer near-term support to the UK currency.
The UK budget should not have a major impact on Sterling with the government likely to concentrate on more politically-orientated and relatively small-scale measures ahead of a May election. Any upward revisions to budget deficit forecasts would be likely to undermine Sterling slightly, although a big impact is unlikely. The budget will also probably reinforce expectations of higher interest rates.
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