Thursday June 17, 2004 - 09:39:01 GMT
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INVESTICA Ltd - www.investica.co.uk
Near-term Sterling support
With US rate expectations scaled back slightly and speculation that the Bank of England could increase rates again in July, Sterling should remain firm in the short term with a potential move towards 0.6545 against the Euro. Sterling should be able to find support around the 1.8250 level against the dollar, but is likely to struggle to push above the 1.8380 level in the short term. There is the potential for a medium-term test of 1.8500.
Sterling found support close to the 1.8250 level in Europe on Wednesday and pushed back above 1.83 in early Europe on Thursday. Sterling also strengthened against the Euro to 0.6565.
The economic data remains strong with a 0.8% monthly sales increase pushing the annual rate to 7.4%, the highest for over two years. There will be further expectations of an aggressive Bank of England tightening with markets moving to discount another rate increase in July. This speculation will continue to underpin Sterling in the short term.
There are, however, medium-term concerns and this will be fuelled by comments from Bank of England Governor King which could be construed as criticising the government's fiscal policy. These policy stresses could prove to be a longer-term Sterling threat.
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