Wednesday November 16, 2005 - 11:04:57 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling rates on hold
Sterling weakened to lows just above 1.73 against the dollar on Tuesday following the UK inflation data. It secured a generally stronger tone in New York, but trading remained volatile and the UK currency weakened significantly against the Euro to 0.6750 and weakened to below 1.73 against the dollar after the Bank of England inflation report with a drop to 1.7250.
In the quarterly inflation report, the Bank of England downgraded short-term growth prospects, but is expecting a recovery during 2006. The central bank projected that the inflation rate will meet the 2.0% target on a two-year view. Overall, the bank is signalling that rates are likely to be left on hold in the short term.
There was a bigger than expected increase in unemployment for October with a 12,000 increase while the headline earnings growth fell to 4.1% from 4.0%. This will tend to undermine the UK currency slightly. Sterling looks to offer value at current levels, but US interest rate expectations will need to shift to allow a significant Sterling recovery against the dollar.
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