Sterling weakened to lows of 1.7070 against the dollar with choppy trading during
Tuesday. The volatility remained high in New York and Sterling was able to… … take
advantage of dollar weakness to push above 1.72. Sterling weakened back to 0.6860
against the Euro, but strengthened back above the 1.72 level in early Europe on
Wednesday as the dollar remained on the defensive.

Sterling will remain vulnerable on yield grounds, but the slightly more dovish than
expected US FOMC minutes will help limit Sterling selling pressure and could trigger
a sharp short-covering rally as US interest rate expectations will edge lower. The
Bank of England minutes recorded a 9-0 vote for unchanged interest rates and the
debate also suggested that the bank would aim to keep rates on hold into the first
quarter of next year at least. There will be reduced speculation that US interest
rates will move above UK rates in the first quarter of 2006 which will lessen
selling pressure on Sterling.

The CBI manufacturing orders survey failed to register any improvement in October,
although there was a recovery in export orders which will offer some support for the
sector. There will be further unease over the impact of high gas prices on the
industrial sector and overall confidence in the economy will remain fragile.

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