Wednesday October 19, 2005 - 10:01:28 GMT
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INVESTICA Ltd - www.investica.co.uk
Bank warning supports Sterling
Sterling fell to a low just below 1.7450 against the US currency on Tuesday after stronger than expected US data, but the UK currency managed to strengthen back to just above 1.75. The UK currency again managed to recover from lows below 1.7450 against the dollar on Wednesday as levels below 1.75 continued to attract some buying interest with a push higher to near 1.7550.
The Bank of England minutes recorded that the MPC voted 9-0 for unchanged rates in October. The central bank also warned that it would have to consider a monetary tightening if there was any evidence that secondary inflation from the impact of high oil prices was taking hold in the economy. This should dampen expectations of a November interest rate cut and will offer some near-term support to the UK currency. Sterling will also be able to gain some support from the level of nominal yields as it will discourage aggressive Sterling selling.
There will be further expectations of rising US interest rates, but higher inflation will tend to unsettle US investors, especially if US growth starts to falter. This uncertainty over economic trends is likely to increase near-term market volatility for Sterling.
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