Monday October 31, 2005 - 10:44:55 GMT
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INVESTICA Ltd - www.investica.co.uk
O2 bid supports Sterling
Sterling was unable to hold its position against the dollar on Friday and weakened to lows below 1.7750 with a drop to 1.7720 in Asian trading on Monday. Sterling also come under pressure against the Euro during Friday, but recovered on Monday with Sterling pushing back to above 1.78 against the dollar and stronger than 0.6790 against the Euro. Sterling secured some support from corporate activity with an agreed takeover of mobile phone group O2 by Spanish group Telefonica for GBP17bn which could involve considerable Sterling buying and underpin the balance of payments.
Interest rate considerations will remain important with the US Federal Reserve set to increase interest on Tuesday while the ECB is also likely to edge towards a tightening this week. These considerations will limit the potential for Sterling gains, although selling pressure will be limited by the fact that the Bank of England is likely to keep rates on hold in the short term. Mortgage lending data was slightly stronger for October which will offer some Sterling support.
The latest IMM data recorded a reduction in short Sterling positions of close to 7,000 in the latest week, cutting the short position to around 14,500. There is likely to have been a further reduction since then, lessening the potential for further near-term Sterling gains, but the short position will still offer some Sterling protection.
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