Monday August 1, 2005 - 10:08:43 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling secured a generally firmer tone on Friday, but was unable to sustain a move above 1.76 against the dollar. Sterling pushed higher again in Asian trading on Monday as the dollar was subjected to more general selling pressure and pushed above the 1.7650 level. The UK currency, however, also weakened back through 0.69 against the Euro to 0.6915.
The UK CIPS report for the manufacturing sector recorded an increase in the PMI index to 49.6 in July from a downwardly-revised 47.0 the previous month. Although below the 50.0 level, the report will at least alleviate some of the gloom surrounding the manufacturing sector.
There will be very strong expectation of a Bank of England interest rate cut on Thursday, but Sterling should be able to avoid further short-term selling pressure on rate considerations unless there is evidence of further economic deterioration. Given the extent of recent pessimism, a small shift in expectations is likely to provide some further Sterling respite in the short term even though underlying confidence will remain weak.
The latest IMM data recorded that there is still a short Sterling speculative position of close to 20,000 contracts. This will maintain the potential for a short covering rally in the UK currency and should limit the short-term risks of selling pressure on the currency.
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