Thursday March 30, 2006 - 09:59:02 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling needs investment inflows
Sterling remained on the defensive against the Euro and weakened towards 0.6945 on Thursday. Sterling also weakened to near 1.73 against the US dollar before recovering back near 1.74 level in early Europe on Thursday.
The increase in US rates to above UK rates for the first time in 5 years, coupled with expectations of higher Euro-zone rates, will make it difficult for Sterling to make much headway on a trade-weighted basis in the short term. Following the GBP31.9bn current account deficit for 2005, the worst figure for six years, confidence was also unsettled by another weak CBI retail report while there was a drop in mortgage approvals for February. The Nationwide Ban, however, reported that house prices rose 1.1% in March
The demand data was not especially significant in isolation, but will be seen in a negative light given the US and Euro-zone interest rate trends. In this environment, Sterling will be more vulnerable if there is any drop in investment flows.
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