Thursday December 8, 2005 - 12:09:47 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling correction continues
Sterling weakened to just below the 1.73 level against the dollar on Wednesday before a recovery back to 1.7350. Wider dollar weakness allowed the UK currency to push back above 1.74 in early Europe on Thursday with a move to 1.7450. There is the potential for a challenge on 1.75.
The Bank of England has left interest rates unchanged at 4.50%. The central bank is concerned over the inflation risks, with forthcoming wage negotiations a particular focus and area of concern. Despite unease over growth triggered by poor industrial data, the bank will be reluctant to cut interest rates again in the short term. Any split in the vote will not be revealed until the minutes are released later in December. The trade data on Friday will also be potentially important.
Given that rates have been left unchanged, international trends will tend to dominate and Sterling will gain support if there is a wider US dollar adjustment weaker. Any position adjustment on high-yield currencies would probably be neutral for the currency as Sterling has not been a prime beneficiary of recent global flows.
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