Tuesday July 5, 2005 - 10:01:57 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling confidence difficult to recover
Sterling remained under pressure on Monday and dipped below the 1.76 level against the dollar. Sterling was able to secure some relief, but was subjected to fresh selling pressure in early Europe on Monday with a decline to 1.7510 before a recovery as trading remained choppy. Sterling also remained fragile against the Euro, weakening to 0.6775 even though the Euro was also on the defensive.
The CIPS index for the services sector was release a day earlier than expected and recorded an increase in the index to 55.8 in June from 55.1 the previous month. There was also a general increase in business confidence and the inflation index strengthened slightly. This should slightly dampen expectations of a near-term rate cut and should force some reassessment of negative Sterling confidence, but it will be difficult to reverse negative sentiment in the short term given the build-up of selling pressure.
Sterling's best chance for a short-term rally comes from the fact that the currency is heavily over-sold against the US dollar on a short-term view and trading is liable to be volatile in the short term given the big moves seen over the past week.
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