Societe Generale

At Gerard Associates Ltd we continue our daily look at factors affecting markets and currencies allowing some insight into conditions affecting exchange rates.

Cash and income timing from a UK Pension or QROPS (Qualifying Recognised Overseas Pension Scheme) should be considered to maximise the Pension, QROPS and investment income taken.

Investment market volatility and currency exchange remains a challenge. The global economics are volatile and unprecedented in history. Currency exchange continues to concern expats with UK Pensions, QROPS and now QNUPS (Qualifying non UK Pension schemes).

Sterling fell against a broadly stronger dollar on Friday after the anticipated release of US

non-farm payrolls was better than expected and improved the chances that monetary policy

makers would start to wind in the loose monetary stance in the US.

Further pressure on the pound came from an earlier survey that showed weaker British

manufacturing activity growth in March.

The US employment report showed the economy added 216,000 jobs last month, the largest

increase since May, offering more optimistic signs that the economic recovery was

underway.

Sterling hit a session low of $1.5987 against the dollar after the data, not far from a two month

low of $1.5937 hit last month. Traders said a large sell order for the 3.00pm fixing

would add pressure on to the pound.

Technical analysts were looking for a daily close under the February lows at $1.5963 to open

up further downside potential for the pound.

Before the U.S. data, the dollar was supported by comments from Minneapolis Federal

Reserve President Narayana Kocherlakota who signalled the Fed could raise interest rates by

three-quarters of a percentage point by the end of the year.

Sterling was also weighed down by weaker-than-expected British manufacturing activity

growth in March. The survey, published earlier on Friday, showed a sharp slow in inflows of

orders, but that firms still ramped up prices at a record rate to cover rising costs.

The figures highlight the balancing act facing Bank of England policymakers over how to

tackle stubborn inflation that continues to rise without risking harming the economy, but

will reinforce expectations it will leave rates on hold in May.

The euro weakened slightly against the pound and GBPEUR moved up around 0.2% to

€1.1343, but stayed within striking distance of a €1.1296 achieved last Thursday. The low

last week was attributed to the inflation report in the euro zone which was higher than

expected and confounded expectations for a rise in ECB interest rates as early as Thursday

this week.

"What we have now is more hawkishness coming out from ECB, more hawkishness coming

out from some members of the FOMC. So there's nothing quite so special about the UK's

rate outlook, and that's being reflected and eroding the interest rate outlook for sterling,"

said a currency strategist at Societe Generale.

The highlight of this week will be the interest decision meetings in both the UK and Europe.

It is expected that the UK will leave monetary policy unchanged with interest rates at 0.5%

and QE at £200bn. Europe on the either hand is expected to many to start raising their rates

immediately. If they do it will be interesting to see the effect of the increased borrowing

costs on the struggling periphery nations. Markets expect the Bank of England to raise UK

interest rates in July, with another rise factored in by year-end.

IN THE UK

• UK PMI manufacturing declined, to 57.1 for March from 61.5, showing that activity in British factories slowed in the last month.

• GBPUSD moved out its 2 month trading range of between $1.60 -$1.64, to fall to the low of the day at $1.5972
• The UK saw a slight boost though as output prices rose at their fastest pace since 1999 and input prices rose for the 19th month in a row highlighting the dilemma the Bank of England faces in regards to interest rates
• The pound sees a 0.2% gain against the euro to reach €1.1343, still just above the 5 month low hit on Thursday of €1.1296 

ELSEWHERE

• Generally the euro continues to hold strong despite poor PMI figures released from the Eurozone with figures dropping 59.0 to 57.5
• US Non-Farm Payrolls better than expected showing an increase to 216,000 against expectations of 190,000 causing the dollar to rise
• Unemployment rate also surprised economists by falling to 8.8% from 8.9% helping the dollar to trade at $1.4064.
• ECB inflation forecasts predict a continued rise, confounding expectations for a rate rise this Thursday
• Swiss retail sales came out much better than expected to 1.5% from a previous -2.4% 

DATA TO LOOK OUT FOR

• UK PMI construction at 9.30 expected to fall to 54.8 from a previous 56.5, more important than PMI manufacturing on Friday
• 10.00 am sees European Price Index, could confirm the ECB’s pricing worries after the inflation report last week.  
• Fed’s Bernanke speaks this afternoon, following a run of good data; it will be interesting to see his stance on monetary policy.
• Highlight of the week will be the UK, European and Japanese interest rate decision meetings on Thursday.  

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 Pension including QROPS and QNUPS and investments in a clear format allowing all customers to make an informed choice.

This with the reassurance and security of UK FSA authorised and regulated advice - essential for your security.

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.

We saw stronger than expected UK retail sales survey on Thursday, which had little impact on sterling as Investors cautiously await the Federal Reserve Chairman, Ben Bernanke’s speech and gross domestic product data later today.

The UK CBI survey showed UK retail sales growth at a three-year high, rising to +35 in August from +33 in July, well above forecasts of +20.

This surprisingly strong data suggests July’s surge in the official retail sales data was not a one-off and the recovery of the economy is seen to continue in the third quarter.

A surge in manufacturing and business services propelled growth to 1.1%, its fastest pace in four years.

A second reading is due today and will give a breakdown by expenditure. Societe Generale except a rise of 0.5% on the quarter after falling 0.1% quarter 1.

Sterling needs to get above the highs of this week at $1.5620 to sustain any rally, however, the pound remains vulnerable to any rise in risk aversion if investors feel that a US slowdown will mirror through to the global economy as a whole, leaving them inclined to seek the safety of the likes of the dollar and the Swiss franc. 

French president Nicolas Sarkozy, today called upon the 20  largest economies to work together in order to get the global monetary order in line.

“We must define a new framework for discussing currency movements”, Mr Sarkozy, adding that China would need to be included when talking about exchange rates, as they have accumulated huge FX reserves.

He also mentioned the need to reduce the dollars dominance as the reserve currency of choice, calling for a greater role for alternative currencies. 

Thursday also saw Gold steady on price, having hit its highest level in two months earlier in the day, after US employment data beat expectations, boosting the dollar and other risk-linked assets such as equities. 

The US Labour Department have confirmed that the number of people claiming jobless benefits for the first time fell by more than expected, taking the edge off some of the concern about the ability of the economy to generate jobs. 

Although this data provided a slight relief to the economy bulls, analysts claim that the overall macroeconomic backdrop remained uncertain enough to wet investor appetite for gold. 

Gold struck a lifetime high of $1,264.90 in June, partly due to the US economy slowdown and a cooling in several major engines of growth, such as China.

“Everybody was optimistic on the economic front back in midsummer, and hence gold was backing off as people were putting risk back on the books and unwinding safe-haven positions” said Scotia Mocatta. “That optimism has disappeared nearly as fast as it arrived. With a string of bad numbers out of the States and the Dow struggling to hold 10,000, the currency markets have become increasingly unnerved by it all” they said.

The dollar, which up until recently has acted as a refuge against volatility in other currencies, has come under pressure as cracks in the recovery of the economy have materialised.

Gerard Associates Ltd advises expats and people considering living abroad on the technical and currency options available for QROPS 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.