Wednesday April 19, 2006 - 10:09:09 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling on fragile ground
Sterling continued to take advantage of dollar vulnerability and strengthened to highs above 1.7850 in Europe on Monday after a weak corrective dollar recovery back to 1.7810. Sterling has proved relatively resilient against the Euro over the past 24 hours with only limited losses to 0.6930 in early Europe on Wednesday.
The Bank of England minutes recorded a 7-1 vote for unchanged rates in April with one seat vacant while Nickell again voted for a 0.25% rate cut. The most likely outcome is that the bank will leave interest rates on hold in the short term. Sterling will secure some further protection against the dollar from the reduction in US interest rates expectations in the short term, but there are still likely to be concerns over the UK economic outlook, especially in the manufacturing sector.
Any sustained drop in global liquidity would also tend to lessen the potential for capital flows into the UK markets and the UK fundamentals do not look convincing which will limit the potential for Sterling gains on a trade-weighted basis.
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