Friday June 3, 2005 - 09:45:13 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling waits for US data
Sterling found good support above 1.81 against the US dollar, but was unable to extend gains beyond the 1.82 level and settled around 1.8170 in early Europe on Friday. Sterling was struggling to sustain gains beyond 0.6750 against the Euro.
The CIPS index for the services sector weakened to 55.0 in May from 56.5 the previous month with business expectations weakening to a 2-year low. The data will reinforce expectations that UK interest rates have peaked at 4.75%, but should not intensify market fears over a sharp UK economic deterioration.
US growth and interest rate trends will also be very important for Sterling. A combination of weak US data and further suggestions US rate increases are near peaking would protect the UK currency from selling pressure as the UK yield advantage would narrow more slowly. In this context, the US payroll report will inevitably be very important on Friday. Sterling will still gain some protection from Euro-zone political and economic stresses, but gains will be much more difficult given the amount of bad Euro news already in the market.
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