Thursday September 16, 2004 - 10:12:16 GMT
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INVESTICA Ltd - www.investica.co.uk
Data forces Sterling re-think
Speculation over an economic slowdown and a peak in interest rates will have to face some reassessment after the strong retail data today. There will be a reduction in aggressive short Sterling positions, although longer-term doubts will persist. Overall, Sterling is liable to be blocked around 0.6780 against the Euro. Sterling has the potential for a move back to 1.7880 against the US currency, but it is close to the middle of the underlying range at current levels.
Sterling weakened to a low of 0.6860 against the Euro before strengthening slightly to 0.6835 in New York. Sterling, however, strengthened sharply after the UK data to 1.7835 and 0.6810 against the dollar and Euro respectively.
Bank of England Monetary policy committee member Nickell stated that rates may not have to increase much further if data remains weaker given signs of a slowdown in the housing sector. These comments reinforced speculation that the UK rates are close to their peak.
The UK data has, however, jolted markets with a reported 0.6% retail sales increase for August compared with expectations of a 0.3% decline. There is still life in the consumer and the cosy assumption that the UK economy has peaked will be brought into question, at least for now. This will create greater market caution in a selling Sterling aggressively in the short term
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