Thursday May 26, 2005 - 10:16:10 GMT
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INVESTICA Ltd - www.investica.co.uk
Rate speculation hurts Sterling
Sterling was unable to make a fresh challenge on resistance above 1.8350 and the UK currency weakened back towards 1.8250 in early Europe on Thursday as the US currency rallied again against the Euro. Sterling weakened to a low of 1.8220 before a recovery. Rising oil prices should offer some support to the UK currency, but Sterling was still unable to make any headway against the Euro.
The breakdown of the UK GDP revisions from Wednesday will unsettle Sterling, especially as there were declines in business investment and exports. This will increase fears that the quality as well as the rate of growth in the UK economy is deteriorating.
The CBI industrial survey reported that output expectations weakened to -1 from -5 the previous month, although there was a marginal recovery in order expectations. Markets are still likely to harden their expectations of second-half interest rate cuts. There is the potential for fresh speculation that the UK interest rate premium over the dollar will fall to 0.5% or less by the end of 2005 from 1.75% now.
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