26 April 2004, 13:20  Sterling picks up momentum, rate hike talk simmers

Sterling moved higher against the euro and the dollar on Monday, aided by speculation that British interest rates may rise from four percent next week. The pound gained 0.4 percent on the dollar to $1.7790 and was half a percent firmer on the day at 66.44 pence per euro by 0840 GMT. Bank of England Monetary Policy Committee member Paul Tucker said in a newspaper interview at the weekend that British interest rates may need to rise and the low rate of inflation would not stop the Bank from tightening monetary policy. British inflation was running at 1.1 percent on the year in March, below the Bank's two percent target. It has raised rates twice in the past six months and meets next week to decide policy. "Tucker was the main force behind the upward momentum. Interest rates continue to dominate currency trading for the time being," said Neil Parker, market strategist at Royal Bank of Scotland Financial Markets. "I just question whether people have not already bought the currency on the back of the interest rate differential and if that is the case there's no real reason to keep buying it here."
Sterling fell to a four-month low of $1.7622 last Thursday when it also hit its weakest in around a month against the euro. The market was forced into a quick rethink of its view of future British rate rises after BOE minutes showed only one member voted for a rate hike in March. The Bank meets on May 5-6 and Tucker said with rates at 4.0 percent the MPC was still stimulating the economy and the Bank would gradually raise rates to their "neutral" level. On its trade weighted index the pound was at 105.0 <=GBP>, up from a one-month low of 104.0 set last week but below a 1-1/2 year high of 106.6 set earlier in April. The Confederation of British Industry releases its monthly and quarterly industrial trends survey at 1000 GMT on Monday. The March survey showed factory order books improved for the fifth consecutive month in a row to their best showing in three years. The balance of eight percent of companies reporting total orders were below normal was the most favourable since December 2000. Britain's manufacturing sector accounts for around one fifth of the economy.///

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