Friday September 9, 2005 - 09:52:29 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling doubts liable to return
Sterling was relatively volatile against the dollar, although the overall ranges were relatively narrow. Sterling retained a firm stance against the Euro with a move to near 0.6750. Sterling weakened back to 1.8330 against the dollar in Asian trading on Friday before a recovery back to 1.8390 in early Europe with trading remaining choppy.
As expected, the Bank of England left interest rates unchanged at 4.5%. Sterling is gaining some short-term support from the fresh market interest in high-yield currencies, but there will still be unease over the underlying trends in the economy and this will limit the potential for Sterling buying interest. The trade deficit rose to GBP5.08bn in August from GBP4.17bn in June, but there are still problems in measuring the data and this will undermine the data’s credibility. There are still longer-term trade risks for the UK economy. Overall, the market appears slightly complacent over the underlying Sterling risks at this stage.
Sterling will still be in a position to gain near-term support from merger activity and bid rumours, although it is doubtful whether there will be a further strong buying interest.
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