Monday December 5, 2005 - 10:55:33 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling looks for investment inflows
Sterling dropped to 1.7250 against the US dollar on Friday after the US employment report before recovering sharply to 1.7370. Trading conditions were choppy as position adjustment continued, but the UK currency was holding above 1.73 against the dollar. Sterling was little changed in early Europe on Monday with the UK currency still hampered by a firm dollar. The CIPS index for the services sector dipped to 55.8 in November from 56.1.
US and international trends dominated on Friday even though the US payroll report was close to expectations and global interest rate considerations will tend to dominate in the short term. With the Bank of England likely to keep interest rates steady and yields relatively unattractive at 4.5%, Sterling is in a better position to attract short-term investment inflows, especially with greater interest in global carry trades. There has also been further evidence of merger-related capital inflows and these flows will offer Sterling support. The government's pre-budget statement today should not have a significant impact.
The latest IMM data recorded no change over the week with net short contracts still at over 30,000. This will maintain the risk of a covering of positions and will offer significant Sterling support.
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