Tuesday April 19, 2005 - 10:02:48 GMT
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INVESTICA Ltd - www.investica.co.uk
UK inflation data may be decisive
Sterling managed to push above 1.90 against the US currency on Monday and the UK currency pushed further ahead on Tuesday with a move to 1.9080. Sterling strengthened back to 0.6820 against the Euro from 0.6840 on Monday. There will be some speculation over merger and acquisition inflows which will offer some Sterling support, although it is doubtful whether this will have a substantial impact.
The inflation data was stronger than expected with the annual rate rising to 1.9% from 1.7% following a 0.4% monthly increase and the annual rate was the highest for 12 months. This figure will cause concerns with the central bank and will revive expectations of a near-term interest rate increase. The chances of a May move to increase rates now look to be around 70%. The RICS report on housing prices reported a steeper decline in house prices for April, the first deterioration in three months, but the immediate impact will be limited given the contradictory reports seen over the past few weeks.
The lack of confidence in all the major currencies will offer some support to Sterling in the short term, but there will still be speculation that a rise in risk aversion will eventually hurt Sterling.
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