Thursday November 9, 2006 - 11:08:15 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling expects rate increase
The UK currency was holding little changed in early Europe on Thursday with a slightly firmer tone against the dollar as US currency sentiment remained fragile.
A 0.25% Bank of England interest rate increase remains a strong probability on Thursday and has also been discounted by the markets. If rates are increased, markets will monitor the statement closely and clear hints over further increase would support the currency. The bank is likely to be more cautious in giving clear signals, especially as the quarterly inflation report is due for release next week. The UK currency will find it difficult to secure strong buying interest on a rate increase to 5.0% and will also be vulnerable to heavy selling pressure if rates are not increased.
The UK trade deficit narrowed to GBP6.6bn in October from a revised GBP6.9bn in September and the trade outlook remains a significant longer-term Sterling risk factor.
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