Tuesday December 20, 2005 - 11:00:58 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling housing boost
Sterling weakened to low beyond the 0.68 level against the Euro and failed to hold above 1.77 against the US currency with a drop to lows just below 1.76 before a slight recovery. The shift in positioning seen over the past week will make it more difficult for Sterling to gain ground. Sterling weakened to 1.7575 in Asian trading on Tuesday before a recovery to 1.7660 after the UK data.
The comments from Bank of England Chief economist Bean weakened Sterling on Monday after he stated in a weekend interview that easing inflation has removed one area of uncertainty. This implied that the bank is now less concerned over inflation and the comments will reinforce speculation that the MPC could now be in a stronger position to consider a rate cut early in 2006. Near-term evidence on growth trends will, therefore, be even more important with markets also looking at Wednesday’s MPC minutes to assess the extent of MPC support, if any, for an early interest rate cut.
The RICS house-price index recorded an increase in prices in November for the first time in over 12 months with the index rising to +4 from -8 in October which, coupled with a boost in November mortgage lending will reinforce expectations of a limited recovery in the housing sector. The housing data should convince the bank to keep rates unchanged.
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