Wednesday August 24, 2005 - 10:21:01 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling struggles for support
Sterling pushed to just above 1.80 against the dollar, but was still not looking entirely convincing above this level on Tuesday. Sterling edged stronger to 0.6785 against the Euro, but failed to hold the gains in early Europe on Wednesday and Sterling weakened to 1.7925 against the US currency. Sterling will struggle to gain further support from interest rate considerations as rate cut speculation has now been scaled back and sentiment is likely to remain fragile in the short term.
The CBI industrial survey recorded a renewed deterioration with the orders component falling to -29 in August from -20 in July. Overall, the report is likely to reinforce a lack of confidence in near-term growth trends.
With confidence in the US economy intact and markets looking for further US rate increases, Sterling will struggle to make significant headway against the US currency. There is a risk that Sterling yields will not be seen as high enough to attract funds on yield grounds while the growth concerns will weaken its defensive credentials. There will be the risk of a gradual erosion of Sterling support over the next few weeks, especially as international funds are liable to withdraw funds, although high oil prices will offer some near-term support.
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