Friday May 28, 2004 - 09:31:51 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling strong, but risk of profit taking
Sterling demand will continue to be underpinned by expectations of a June rate increase and Sterling should remain strong over the next week. The market is likely to target the 1.85 level against the US currency eventually, but there is the need for a correction back below 1.8350 first with long positions dangerous at current levels.
Sterling has remained firm over the past 24 hours, taking advantage of domestic strength and dollar weakness. Sterling strengthened strongly to a high of 1.8415 against the dollar before a slight correction back to 1.8365.
The CBI industrial survey was stronger than expected and this will make it easier for the Bank of England to increase interest rates again to curb the strength of domestic demand. Lending figures have also remained strong.
The expectations of a June rate hike will continue in the short term and Sterling's attractiveness will also be supported by the renewed doubts over an aggressive US tightening.
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