Wednesday May 16, 2007 - 10:48:25 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling drifts weaker
Overall, Sterling is liable to weaken to some extent given that further interest rate increases are already priced in, but heavy selling is unlikely unless risk tolerances fall sharply.
Sterling weakened to lows close to 1.9750 against the dollar and beyond 0.6850 against the Euro on Tuesday, but recovered strongly back to 1.9850 against the dollar. The UK currency held firm against the dollar in early Europe on Wednesday and was little changed close to 0.6845 against the Euro with the UK data not triggering a significant reaction.
Headline UK earnings data was lower than expected with an annual increase of 4.5% for April compared with 4.6% the previous month, but underlying growth edged higher to 3.7% from 3.6% while jobless claims fell by more than 15,000 in the month. There will be some Bank of England relief over the headline data, but the firm underlying labour-market data will limit the impact.
The Bank of England inflation report was mixed with the bank stating that medium-term inflation risk are skewed to the upside, but that wage concerns have eased slightly. The bank will need to a consider a further increase in rates, but the issue is open.
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