Thursday September 23, 2004 - 10:16:05 GMT
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INVESTICA Ltd - www.investica.co.uk
Global doubts offer Sterling protection
There will be further speculation that UK housing prices are weakening and that this will allow the Bank of England to keep interest rates on hold. Bad news has, however, been factored into current levels and Sterling should be able to resist a decline through the 0.6880 level against the Euro for now. Sterling should be able to find support around the 1.7880 level against the US currency, potentially challenging 1.8020 and possibly 1.8080.
Sterling resisted a renewed decline beyond 0.6850 against the Euro and was holding close to 0.6835 in early Europe on Thursday. Sterling dipped to a low of 1.7880 against the US currency before rallying back to 1.7980 on Thursday.
The Bank of England minutes could be interpreted in two ways and the markets will have to wait for further evidence on retail demand and housing prices to assess which verdict on interest rates is more likely to be realised. The IMF warned over risks to the housing sector, but markets will take greater note of domestic indicators. A significant slowdown has, however, been factored in and the economic data will need to be very weak to trigger further aggressive currency selling.
Doubts over global growth will also tend to support Sterling, especially if forthcoming US data is weak. The lack of attractive international alternatives will tend to offer some near-term Sterling protection from selling pressure.
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