Tuesday June 13, 2006 - 10:40:19 GMT
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INVESTICA Ltd - www.investica.co.uk
Inflation expectations dominate Sterling
Domestic and international interest rate expectations will remain very important in the short term. The UK data today will maintain inflation fears, but the Bank of England is likely to hold rates steady for now and expectations of rising global rates will limit near-term Sterling buying interest.
Sterling has hit resistance above 1.8450 against the US currency, but found support below 1.84. Sterling was holding steady in early Europe on Tuesday in nervous trading as attention focussed on global stock markets.
Interest rate expectations, both domestically and internationally, will tend to dominate in the short term. UK consumer prices rose 0.5% in May with the annual rate increasing to 2.2% from 2.0%, primarily due to the rise in energy bills. The core annual rate was held to 1.1%, but inflation concerns will persist.
In overnight comments, Bank of England Governor King expressed concerns over inflationary pressure with unease over import price trends and he also stated that global policy had probably been too accommodative over the past year. The overall tone of his remarks suggested that rates would be left on hold in the short term to await further global and domestic developments even with a bias towards a rate increase. The bank is unlikely to consider that there is an urgent need for action, especially with Sterling still firm and the equity markets weakening.
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