Thursday June 3, 2004 - 09:54:31 GMT
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INVESTICA Ltd - www.investica.co.uk
Temporary Sterling correction
The fundamentals will remain Sterling positive, especially with high energy prices. There is the potential for a further near-term reduction in long Sterling positions and a corrective decline against the dollar, but the UK currency should secure strong support at 1.8250. The longer-term trends suggest a renewed test of 1.85 is possible within the next week. Sterling could dip to 0.6680 against the Euro, but substantial losses are unlikely.
Sterling peaked at 1.8485 against the US currency, but then fell sharply due to a combination of profit taking on long Sterling positions and a recovery in the US currency. Sterling fell to 1.8320 in New York and dipped below 1.83 in early Europe on Thursday. Sterling edged slightly weaker against the Euro to 0.6660.
The services-sector CIPS index was slightly weaker than expected with a decline to 57.4 in May from 59.0 in April. The underlying fundamentals will still be Sterling positive with expectations of higher interest rates despite today's data. Sterling has, however, priced in the possibility of a June rate hike and this will make it difficult for the UK currency to secure further strong near-term buying interest. There will also be further concerns over the balance of the economy and distortions caused by the housing sector.
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