Wednesday November 23, 2005 - 11:26:35 GMT
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INVESTICA Ltd - www.investica.co.uk
FOMC minutes underpin Sterling
Sterling weakened to lows of 1.7070 against the dollar with choppy trading during Tuesday. The volatility remained high in New York and Sterling was able to take advantage of dollar weakness to push above 1.72. Sterling weakened back to 0.6860 against the Euro, but strengthened back above the 1.72 level in early Europe on Wednesday as the dollar remained on the defensive.
Sterling will remain vulnerable on yield grounds, but the slightly more dovish than expected US FOMC minutes will help limit Sterling selling pressure and could trigger a sharp short-covering rally as US interest rate expectations will edge lower. The Bank of England minutes recorded a 9-0 vote for unchanged interest rates and the debate also suggested that the bank would aim to keep rates on hold into the first quarter of next year at least. There will be reduced speculation that US interest rates will move above UK rates in the first quarter of 2006 which will lessen selling pressure on Sterling.
The CBI manufacturing orders survey failed to register any improvement in October, although there was a recovery in export orders which will offer some support for the sector. There will be further unease over the impact of high gas prices on the industrial sector and overall confidence in the economy will remain fragile.
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