Thursday August 5, 2004 - 09:42:35 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling discounts 0.25% rate increase
Sterling has priced in a 0.25% rate hike and it is likely to need a 0.5% rise to secure buying interest. The chances of a 0.5% hike are only around 10%. There is, therefore, the risk of profit taking after the rate decision, but Sterling should be able to secure initial support at the 1.8150 level against the US currency. Longer-term, Sterling still offers little value stronger than 0.66 against the Euro.
Sterling weakened to a low of 1.8180 against the US currency, but rebounded back to 1.8265 in early Europe on Thursday as the dollar weakened again. Sterling held close to 0.66 against the Euro before dipping slightly after the industrial data which showed a 0.7% decline for June.
The Bank of England will announce its interest rate decision at 11.00 GMT today. The most likely outcome is that there will be a 0.25% rate increase with only a very small chance that rates will be left unchanged. There is a small chance of a 0.5% rate increase, but the bank will probably reject this policy. A 0.25% rate rise has been discounted by the markets and Sterling will probably not gain if there is a 0.25% increase with the risk of profit taking after the decision.
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