Tuesday November 29, 2005 - 11:12:27 GMT
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INVESTICA Ltd - www.investica.co.uk
Speculative excess supports Sterling
Sterling was subjected to a high degree of volatility in trading on Monday with the UK currency buffeted by dollar moves. Sterling weakened to lows close to 1.7050 against the US currency in early Europe, but the UK currency gained strongly in New York as wider dollar losses propelled Sterling to highs of 1.7335 before a retreat back to 1.7225.
The Nationwide Bank reported that house prices were unchanged in November with a 2.4% annual increase while mortgage lending was at the highest level for 12 months in October. This will maintain expectations of a slightly stronger housing sector in the short term. International interest rate considerations will tend to dominate in the short term with investors looking at ECB and Fed interest rate intentions. In comparison, the Bank of England will aim for short-term policy stability, although speculation could drift slightly more towards expecting that the next move will be for an increase.
The yield considerations will tend to undermine Sterling, but the speculative positioning data will be important. The latest data reported the biggest increase in short Sterling positions for six years in the latest week with a net short position of over 33,000 contracts. This will limit the risk of further short-term Sterling losses and volatility is likely to be high.
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