Wednesday June 22, 2005 - 09:55:53 GMT
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INVESTICA Ltd - www.investica.co.uk
Bank of England surprise
Sterling recovered from lows below 1.82 against the dollar during Tuesday and rallied to near 1.83 in early Europe on Wednesday. Sterling retreated from gains beyond 0.6650 against the Euro and Sterling was subjected to considerable selling pressure after the UK Bank of England minutes with a drop below 1.82 against the UK currency.
The Bank of England minutes recorded that two members vote for an immediate rate cut at the June meeting while the other seven voted for no change. This vote will increase speculation that the Bank of England will decide on a rate cut as early as next month, although the bank will probably still be cautious, especially with a fresh rise in energy prices. It is more likely that the bank will hold steady in the short term and wait for further evidence of consumer spending. The UK mansion house speeches by the Chancellor and Bank of England governor will be closely watched tonight for hints on interest rates and economic trends.
Sterling will gain support in Europe from continuing Euro vulnerability and speculation over a cut in ECB interest rates. There is also evidence of greater caution over the US currency which will help protect Sterling to some extent from heavy short-term selling pressure, butt he underlying speculation over lower European rtes will continue.
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