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mpc: 3 Exchange rates had been volatile during the past month. Overall, since the previous MPC meeting, the euro had depreciated by around 1½% against the dollar, and the sterling effective exchange rate index had risen by 1½%, touching its highest level since February last year ­ at nearly 3% above its value at the beginning of 2004. It seemed likely that sterling's appreciation reflected market participants' expectations of a repo rate increase in February and the positive news about UK domestic demand growth in the past couple of months. It was also possible that, in the light of fears of renewed dollar weakness and slow domestic demand growth in the euro area, sterling assets had become relatively more attractive to international investors.