Wednesday July 20, 2005 - 10:18:32 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling suffered further losses against the Euro in early Europe on Wednesday with a move to lows just beyond 0.6950. Sterling also fell sharply after the Bank of England monetary minutes with a low near 1.7325 against the dollar. The markets will be looking to challenge the 2005 Sterling lows around 0.70 against the Euro, but the UK currency is slightly over-sold on a short-term view.
The Bank of England minutes recorded that there was a 5-4 vote for unchanged rates in July compared with expectations of a 6-3 vote. The minority of members were concerned over the outlook for consumer spending and business investment, especially after the downward revisions to GDP growth and appeared more concerned over the economy than expected. The minutes will reinforce expectations of an interest rate cut in August.
Underlying confidence over the economy will also remain weak and the data on Thursday and Friday will also be important in shaping expectations and in determining whether Sterling pessimism has been overdone. This is a realistic possibility, but Sterling is prone to a large movements once sentiment turns and this will maintain the risk of further selling pressure. Volatility is likely to be a key short-term feature.
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