21th July 2010 Pension Foreign Exchange Report QROPS & QNUPS

We continue our daily look at factors affecting currencies allowing some insight into market conditions affecting exchange rates. Cash and income timing for UK Pensions and QROPS should be considered to maximise the Pension, QROPS and investment income and benefits taken.  

Investment market volatility and currency exchange remains a challenge. Things are still very volatile and we are in unique global influencing territory.  In conjunction with investment returns, currency exchange continues to concern many expats with UK Pensions, QROPS and now QNUPS.    

Sterling started the day on the back foot as an increase in Public Sector Borrowing caused the pound to quickly fall.  However the poor data release was seen as a short term negative by analysts and sterling made gains against both the Euro and Dollar later that day. 

Economists had forecast a fall in Public Sector cash requirement down to £15bn from £20.213bn this time last year.  However an increased figure of £20.905bn was announced and sterling declined immediately after reaching a day low of $1.5151 and a 3 week low versus the Euro €1.1718. 

Cutting the costs of Public Sector borrowing was one of the new coalition Governments priorities in the emergency budget announced last month.  These spending cuts are yet to have an impact, which is why investors have seen this increase in Public Sector borrowing as a short term negative.  Some analysts still question whether the medium term outlook for reducing the deficit is as positive as the government believe, but most are confident that the deficit will be reduced significantly. 

Sterling finished the day up against both the Euro and Dollar, ending the day 0.59% up, and trading around €1.1822 and up around 0.34%, trading at around $1.5268.  

Investors and analysts are more fixated on the outcome of Friday’s 2^nd Quarter UK GDP estimate, a growth of 0.6% is expected and anything either side of this could have a significant effect on investor bets. 

At 9.30am today the Bank of England Minutes are released.  Junes meeting showed that BoE policymaker Andrew Sentence voted for an interest rate increase by 25 basis points.  

An increase in interest rates would increase yield value in that particular currency which attracts more investment.  If some of the other Bank of England policymakers have followed suit and voted for an interest rate increase, then there would be a more likely scenario that interest rates would be increased sooner than expected, and sterling would look more attractive in the medium term.  

Other UK data included lending to businesses, which showed a contraction for the third consecutive month in May and fewer mortgages were approved by major banks in June.  Also The Confederation of British Industry survey's total order book balance rose to -16 this month, from -23 in June, and above expectations of -24, its highest figure since August 2008. 

In other News Friday will show the results of the European Banks ‘Stress Tests’, which are aimed to see how banks would cope in another economic downturn.  91 banks will take part in a hope to restore confidence after Greece’s debt crisis sparked fears the euro zone could unravel and leave banks nursing big losses on government debt.  The euro traded fairly flat against the dollar, but finished 0.25% down on the day at around $1.29, after briefly moving above $1.30 earlier on. 

Gerard Associates Ltd advises expats and people considering living abroad on the technical and currency options available for Pensions, QROPS, QNUPS and investments in a clear format allowing all customers to make an informed choice. Our service encompasses Pensions, investments, currency exchange and guidance on taxation in most popular ‘sunnier’ climates.   This with the re-assurance and security of UK authorised and regulated advice – essential tools for your security.