Wednesday July 14, 2004 - 09:33:10 GMT
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INVESTICA Ltd - www.investica.co.uk
Political uncertainty may delay Sterling gains
Expectations of higher UK interest rates in August will remain intact and this will help underpin Sterling in the short term, especially if the US data is disappointing. Political factors will be under scrutiny over the next 48 hours and could delay currency gains, but Sterling should be able to hold above 1.85 with a possible challenge on 1.8650 later today. Sterling offers little value beyond 0.6625 against the Euro.
Sterling was undermined by the US correction against the Euro, but Sterling held above the 1.85 level against the US currency and pushed back to near 1.86 in early Europe on Wednesday. Sterling strengthened to 0.6630 against the Euro before retreating back to 0.6650.
The UK unemployment report was mixed with a decline in the claimant count, but an increase of 6,000 in the wider internationally-recognised ILO count. The data should not have a major impact on the currency and there will be continuing expectations of an August interest rate hike. As long as the US data is subdued, the prospective rate trends and yield gap will tend to boost Sterling.
The Butler report today and by-elections on Thursday could cause embarrassment for the government and hamper Sterling gains, but a major impact appears unlikely.
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