Wednesday October 26, 2005 - 10:27:56 GMT
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INVESTICA Ltd - www.investica.co.uk
US doubts underpin Sterling
Sterling pushed ahead strongly against the dollar on Tuesday as the US currency came under pressure. Sterling pushed to highs above 1.7850 before a consolidation in New York and Sterling was holding above 1.78 in early Europe on Wednesday before profit taking pushed the UK currency lower. The CBI manufacturing report recorded a marginal improvement, but will not have a significant impact
Domestic interest rate expectations will remain important in the short term. Bank of England governor King stated that the economy faces a period of greater uncertainty, but he also stated that the central bank would need to focus on inflation and could not attempt to fine-tune growth levels. This will continue to dampen speculation over a November rate cut and reduced expectations of a near-term rate cut will continue to offer some support to Sterling, especially if doubts over the US economy start to increase.
Sterling is likely to face greater difficulties in securing further strong gains against the US currency, especially as the currency is now over-bought on a short-term view, but support should be strong on any renewed losses towards 1.7650.
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