Wednesday August 18, 2004 - 09:34:12 GMT
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INVESTICA Ltd - www.investica.co.uk
Rate doubts hurt Sterling
Market sentiment is likely to remain weaker in the short term with further speculation that UK rates are close to peaking. The Bank of England minutes today have not altered the near-term position. Yield differentials should still offer some protection and deter aggressive selling, but Sterling could now weaken to the 0.6780 region against the Euro. Even with selling pressure, short Sterling positions offer little immediate value below 1.8220 against the dollar.
Sterling has remained on the defensive over the past 24 hours, primarily due to further speculation that UK interest rates are close to peaking. Sterling weakened to 0.6760 against the Euro and also weakened to a low of 1.8260 against the US currency before a slight recovery in Europe on Wednesday.
There has been hedge-fund selling of Sterling and this is likely to continue in the short term. According to the minutes, the Bank of England voted 9-0 for unchanged rates at the August meeting. There was no sign of discussion over a 0.5% rate increase. The minutes were broadly in line with market expectation and should not intensify selling pressure, but Sterling is likely to remain on the defensive initially, especially with markets looking for something to trade on.
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