Tuesday September 12, 2006 - 10:25:55 GMT
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INVESTICA Ltd - www.investica.co.uk
CPI data supports Sterling
Sterling weakened to near 0.6820 against the Euro and 1.8605 against the dollar on Monday before recovering slightly. The UK currency had a firmer tone in early Europe on Tuesday with a move back above the 1.8650 level against the US currency and gained ground after the inflation data.
The UK consumer inflation data recorded a higher than expected monthly increase of 0.4% with the annual inflation rate rising to 2.5% from 2.4%. The core annual rate also rose to 1.1% from 0.9% the previous month. The higher than expected inflation rate will prevent a further downward adjustment of interest rate expectations and will curb Sterling selling. The Bank of England, however, can afford to be patient on interest rates, especially as there has been drop in oil prices over the past two weeks.
Political stresses could revive during Tuesday with prime Minister Blair due to speak to the TUC conference and this could weaken the currency slightly, although there should not be a substantial impact.
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