Thursday April 14, 2005 - 09:55:08 GMT
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INVESTICA Ltd - www.investica.co.uk
EU doubts protect Sterling
Sterling hit resistance above the 1.8950 level against the US dollar during Wednesday and retreated back to 1.8880 in early Europe on Thursday. Sterling retained a firm tone against the Euro, primarily due to underlying Euro vulnerability with Sterling stronger than 0.6825 against the Euro.
The recent economic data has continued to indicate a mixed picture, illustrated by the earnings data yesterday as a higher than expected headline figure was offset by subdued underlying growth and a rise in unemployment. The case for a further interest rate increase remains very finely balanced whereas there is a clear case for a further increase in US interest rates. Sterling's yield advantage over the US currency will certainly narrow over the next 2-3 months which lessen Sterling buying interest.
Sterling may gain some support from the fact that it is outside European Monetary Union in the short term, especially with political fears over the EU constitution. Any French no vote at the end of May would also lessen the political pressure on the UK government over the proposed EU constitution. These factors will offer some near-term Sterling support even if the market tend to over-react in the short term.
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