Monday July 18, 2005 - 09:37:39 GMT
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INVESTICA Ltd - www.investica.co.uk
Housing data hurts Sterling
Sterling remained choppy against the Euro and was unable to sustain gains beyond 1.76 against the US currency, weakening back towards 1.7520 in late New York. Sterling made a brief recovery in early Europe on Monday before weakening to below the 1.75 level and also weakening to just 0.69 against the Euro.
Overall Sterling confidence remains weak and there will be further near-term concerns over the housing-sector outlook. The Rightmove organisation reported a 1.0% drop in house prices for July and there was an annual decrease of 0.2%, the worst annual performance for 10 years. The data will reinforce concerns over deteriorating confidence in the UK economy with the risk of a decline in consumer spending as housing conditions deteriorate. There will also be further pressure for a near-term cut in Bank of England interest rates which will keep Sterling on the defensive, especially given the strong US data last week. Sterling will aim for a correction stronger if the bank minutes preach caution.
The latest IMM data recorded a small decline in short Sterling positions in the latest week, but there is still a net short position of over 20,000 contracts. This will maintain the risk of a corrective rally stronger for Sterling, although the risks have eased very slightly.
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