Friday September 10, 2004 - 08:59:07 GMT
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INVESTICA Ltd - www.investica.co.uk
Sterling looks for short-term correction
Without contradictory evidence there will be further speculation that UK interest rates have peaked and this will continue to unsettle Sterling. The US doubts will, however, limit the potential for Sterling losses against the dollar and there is also scope for selling pressure to ease with a temporary correction. Overall, Sterling should secure near-term support at the 0.6850 level against the Euro. Sterling is likely to hit resistance close to 1.7950 against the dollar in the short term unless the US trade figures are very poor.
Sterling remained on the defensive against the Euro, weakening to the 0.6750 level before staging a mild recovery in Europe on Friday.
As expected, the Bank of England left interest rates at 4.75% on Thursday. There was no statement accompanying the announcement giving the market little in the way of fresh incentives. There will still be speculation that UK rates have peaked unless there is data to contradict this. The next evidence that will be watched closely is the inflation figures next week.
Sterling is likely to remain vulnerable, especially after the poor trade figures on Thursday. Selling pressure should, however, ease slightly after the consistent pressure seen over the past two weeks. At this stage, Sterling gains are likely to be corrective rather than signaling a longer-term recovery for the currency.
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