Tuesday May 17, 2005 - 10:19:49 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling still over-sold
Sterling weakened to 1.8330 against the US currency before staging a weak recovery and pushing back to 1.84 on Tuesday. The UK currency also weakened to near 0.6880 against the Euro before edging slightly stronger in early Europe on Tuesday.
Doubts over the UK economy are liable to continue in the short term unless there is compelling evidence to reverse the current negative sentiment. Much of the short-term bad news should now be in the market which will lessen the risk of further short-term currency losses and Sterling needs to see a further correction after recent sharp losses, but the UK currency will struggle to regain near-term buying interest.
According to the RICS, the proportion of estate agents reporting house-price increases fell to -40 in April from -39 the previous month. Agents also reported a decline in activity which will raise fears over a further downturn in prices. Doubts over consumer spending growth will continue in the short term.
The inflation report was in line with market expectations and the annual rate was unchanged at 1.9%. The data will not put additional pressure on the Bank of England to increase interest rates on inflation grounds and the near-term implications will be limited, although it will reinforce market expectations that interest rates will not rise further.
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