Prudential

For the Eurozone expat the €uro spot rates hitting €1.20+ to the £1 brings a welcome boost to currency exchange. 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.  

Continuing our daily look at factors affecting currencies allows 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.

The pound hit an 18 month high against the euro on Monday after reports were released about a restructuring of German bund and gilts, worrying investors and intensifying the concerns over the Eurozone and its single currency.

As well as suffering against the pound, the euro fell to a 4 year low against the US dollar after a Hungarian official said in a loose lipped statement that Hungary had only a slim chance of avoiding a Greek-style debt crisis. However, much criticism came about the highly negative way in which he spoke about Greece and the Eurozone economies as if no-one was listening.

Weaker than expected US employment data on Friday forced investors to sell off their risky assets, combined with a new European Union member facing problems, euros were sold in favour of the dollar.

At 11.15 am in London, the euro made back some ground against the dollar and traded at $1.1980, however it struggled to maintain this level and spent most of yesterday in the early $1.19’s.

At 3.30pm the pound reached a session high of €1.2179 against the euro, we have not seen levels this high since early November 2008, from when the pound had maintained levels around the €1.25 for most of the year before collapsing and heading down towards parity in late 2008.

Technical traders have suggested that the next significant level to watch is around the €1.2200 to €1.2240 mark, representing the October 2008 high and the 50 percent retracement of the 2007- 2008 downtrend.

Against the dollar the pound remained within limits seen over the last few weeks, making around 0.6% moving to $1.4555 after having slipped to a low of $1.4388 early in the session as a result of investors favouring less risky assets after Friday’s data and the Hungarian comments.

Traders said market speculation that Prudential would have to buy back sterling following the collapse of its bid for AIG's Asian arm was helping the pound to bounce on the day. Prudential were said to have put in a series of currency hedges, selling sterling to buy dollars, in anticipation of the deal going through.

British PM David Cameron said in press conference that the UK economy was in a much worse state than was first expected and “painful times lie ahead for the country”

On a brighter note, whilst the new government are not trying to paint a pretty picture, investors appear to be at ease with their measures and their commitment to tackling the debt problems.

For the time being this might be supportive for the pound whilst the recovery continues.

There was some positive news for the UK economy as British manufacturing output and orders grew at their fastest pace in 15 years in the second quarter. However, the Engineering Employers Federation said worries about fiscal tightening and the Eurozone economy have clouded expectations.

Looking ahead, trade data for April is published today, while the Bank of England's Monetary Policy Committee is widely expected to keep interest rates at 0.5% and continue the pause in its Asset Purchase Programme.

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 to avoid the offshore casino.

Some relief for expats as the rally in UK equity markets and improving strength of sterling against the Euro continues. The combined effect of ongoing volatility in both currency and equity markets 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.  

Continuing our daily look at factors affecting currencies allows 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.

Thursday saw gains against both the dollar and Euro after sources close to the deal said UK insurer Prudential was pushing ahead with its bid for AIG’s Asian business.

The speculation that the takeover bid could be abandoned was quashed and sterling gained as much as two cents versus the dollar at one point with traders citing expectations that Prudential would need to unwind previous purchases of dollars.

The pound and the US dollar initially gained against the euro, however this movement retraced as investors returned to risk after Chinese officials denied a report the country may be worried about the risk posed to Eurozone debt holdings.

Sterling has risen against the euro recently as investors started buying the pound on the view that the UK’s debt problems are less severe than the Eurozone’s. We have already seen its biggest weekly percentage gain against the euro since November last year.

The UK CBI Retails sales took an unexpected hit in May, due to poor weather and the biggest inflation of prices in two years. It was the biggest one-month drop in the index since January 2005.

This confirmed that a large majority of retailers were seeing falls in sales compared to the 1.8 percent annual sales growth for both March and April. Stores predict more gloom on this front, despite what Howard Archer, chief UK economist at HIS Global Insights, saw as the possibility of higher sales of televisions, alcohol and snacks due to the World Cup.

The Bank of England will also be worried on the outlook of prices, after the consumer price data showed the highest rate of inflation in 17 months in April. Thus there is growing pressure to raise interest rates before the end of the year amid concerns over heightened inflation, although it is believed that they will hold on to the record low base rate for many more months to come.

In the US, first quarter GDP figures were revised down, defying forecasts, growing at a slower rate than earlier estimated. Economists had expected to show that the US economy grew 3.3%, but the true figure was adjusted at 3%.

Following the release of this data, the US dollar was down against the Euro.

Gerard Associates Ltd advises expats and people considering living abroad on the technical and currency options available for Pensions, QROPS 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 to avoid the offshore casino.

Summary:

IN THE UK

• Sterling gains against 13 of the 16 most traded currencies.
• PMI data released shows strongest expansion to the services sector in the past 3 years.
• Consumer confidence at the highest level in 2 years.
• Prudential’s purposed buy out of AIG may fall through after concerns over falling share prices.
• Bank of England policy decision held today.

IN THE US 

• Greece announces spending cuts and tax increases all aimed to cut the current monetary deficit.
• German retail sales (MoM) 0.5% better than consensus
• Euro gains against the dollar to its highest level in the last two weeks.

IN THE EU

• Investors sell off the greenback over increase in risk appetite.
• Unemployment rises sharply in US.
• Housing data release today.