Thursday July 7, 2005 - 10:37:53 GMT
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INVESTICA Ltd - www.investica.co.uk
Terrorism incidents overshadow Bank of England decision
Sterling was unable to retain gains above 1.76 against the US currency and weakened back to 1.7525 in late New York. After a limited recovery in early Europe on Thursday, Sterling was hit hard by reports of terrorism incidents in the UK. Sterling fell to lows near 1.74 against the dollar and 0.69 against the Euro.
The Halifax Bank reported that house prices rose 0.1% in June, but the annual increase slowed to a fresh four-year low of 3.7%. Overall Sterling sentiment remains weak and the Bank of England interest rate decision today will be important. The immediate effect will, however, be overshadowed by the terrorism incidents in London.
The most likely outcome is that the bank will keep interest rates on hold today with the bank not wanting to be seen as responding in a panic fashion to signs of economic weakness, especially as the recent deterioration may have been overstated. Nevertheless, there is a strong potential for rates to be cut within the next few months and there is a 20% chance that the bank will act today. If rates are unchanged, Sterling is likely to rally to some extent, but selling pressure on the currency would be liable to return relatively quickly on any sizeable currency rebound as markets will speculate over a rate cut in August.
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