Friday July 23, 2004 - 09:26:30 GMT
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INVESTICA Ltd - www.investica.co.uk
GDP data supports Sterling
Expectations of an August rate increase will persist after the GDP figures and this should boost Sterling. Uncertainty over Euro/dollar trends may also offer Sterling support. Longer-term fears will persist, but Sterling should remain firm in the short term. Sterling should secure support on any near-term dip to 1.8350 against the dollar.
Sterling gained support at the 1.8350 level and pushed back above 1.84 against the US currency on Thursday before retreating again in early Europe on Friday as the dollar rallied. Sterling strengthened to 0.6645 against the Euro before a retreat to 0.6655.
The GDP data was in line with market expectations with a 0.9% quarterly increase. The annual rate increased to 3.7%, the highest since the second quarter of 2000. The Bank of England will take some comfort from the fact that the growth was more balanced with a revival in manufacturing, but expectations of an August rate hike will continue. The implications are mildly Sterling positive given that strong data has been factored in.
The lack of conviction over dollar trends against the Euro may draw some short-term funds into Sterling. High oil prices will also offer some initial support.
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