Tuesday July 6, 2004 - 09:18:30 GMT
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INVESTICA Ltd - www.investica.co.uk
Industrial data underpins Sterling
The Bank of England is likely to leave rates unchanged this week, preventing strong Sterling buying on domestic grounds, although the economic data will boost expectations of an August rate hike. Sterling has the potential for a test of resistance above 1.8350 against the US currency and 1.85 is still a realistic medium-term level. Sterling could find support at 0.6725 against the Euro after the firm industrial data.
Sterling dipped to 1.8275 against the US currency before pushing back above 1.83 in early Europe on Tuesday. Sterling was marginally weaker at 0.6715 against the Euro. Sterling should secure some near-term support from the increase in oil prices and the UK economic data today was also stronger than expected.
The manufacturing production figures offered some relief with a 0.5% monthly increase for May and this will give the bank more scope to increase interest rates if necessary.
The most likely outcome is that the Bank of England will leave interest rates unchanged at this week's meeting and wait until August for the next tightening. This will tend to curb substantial short-term Sterling buying on yield grounds, although the underlying rate trends should allow a firmer Sterling bias against the dollar.
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