Tuesday May 24, 2005 - 10:01:17 GMT
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INVESTICA Ltd - www.investica.co.uk
Limited Sterling relief
Sterling found support below 1.8250 against the dollar during Monday, but was still struggling to make any major headway against the US currency. Sterling did, however, push above the 1.83 level in early Europe on Tuesday as the dollar was subjected to wider corrective pressures. Sterling was unable to strengthen back through 0.6860 against the Euro.
The market evidence suggests that, although there has been a sharp reduction in long Sterling positions, there is not an aggressive short position. This will make it more difficult for the UK currency to make headway on any wider US currency correction triggered by a reduction in long dollar positions. This positioning will increase the risk of Sterling under-performance against the major crosses.
There is, however, the potential for consolidation in the short term, especially with a lack of UK data. Markets will also be looking at forthcoming data to assess whether the pessimism over UK growth prospects is justified or has been over-done. The forthcoming news will have to be very poor to trigger further near-term aggressive Sterling selling. The OECD has stated that further UK interest rates will not be needed.
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