Wednesday January 4, 2006 - 10:58:41 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar doubts protect Sterling
Sterling continued to benefit from a weaker US dollar on Tuesday and Wednesday with a push to highs above 1.75 against the US currency before a slight retreat. Sterling was able to resist a decline through 0.69 against the Euro and was holding close to 0.6885 in early Europe on Wednesday while there were renewed gains above 1.75 against the dollar.
The UK currency will be in a better position to resist selling pressure against the dollar if US interest rates appear close to peaking and, in this context, the latest Fed minutes will offer support. Although US interest rates are still likely to increase in January to 4.5%, there is a greater possibility that US rates will not move above UK levels during the first quarter and this will offer Sterling relief.
Overall buying interest will still be limited by the fact that markets will still be expecting another UK interest rate cut. The combination of faltering UK growth and a Euro-zone strengthening trend will tend to weaken the UK currency against the Euro.
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