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.
Tuesday proved to be a volatile day, with sterling falling across the board, following UK
inflation data out in the morning. Sterling fell to a five and a half month low against the euro
(hitting €1.1218) and cable fell to a one week low of $1.6226.
The UK annual CPI (Consumer Price Index) fell to 4% in March, much below forecasts of an
unchanged reading of 4.4%. This was not only the first fall in the CPI rate since July of last
year, but also the lowest annual rate of increase since January. This figure has dented
speculation of a near-term rate hike and easing pressure on the Bank of England to raise
borrowing costs as the UK economy remains fragile, which was also highlighted by a weak
retails sales survey overnight.
Expectations are that the European Central Bank will continue raising rates whilst the UK’s
rate remains at 0.5%. The euro was on course to test the October 2010 high against the
pound of 89.41 pence. (€1.1184)
Adding more woes to the UK economy, was the Retail sales figure released overnight. This
showed retail sales falling at their fastest annual pace since records began in 1995 and RICS
believe house prices continue to fall.
Britain’s GDP was showed to have shrunk at the end of last year (2010) and as a result,
growth this year is expected to be rather modest as public spending cuts, high employment
and tax rises take their toll on consumer confidence.
Consumer-Price Inflation in Germany, Europe’s largest economy, held steady at its highest
level in more than two years in March as energy prices continued to rise. This data will
continue to put pressure on the European Central Bank to keep its interest rates under
review after its 25 basis point increase to 1.25% last week, with expectations of a rise to
1.75% by the end of the year. German CPI, when calculated in line with the European Union harmonised methodology, rose 0.6% on a monthly basis in February and increased 2.3%
annually, according to its final figures, higher than forecasts of a 0.5% and 2.2% rise.
Germany’s robust expansion could well continue over the next few months and they are one
of the main drivers of the euro zone’s recovery. German ZEW declined more sharply than
forecast in April, dropping from 14.1 in March to 7.6 in April. Economists had forecast a drop
to 10.0.
“Despite the positive economic development, considerable risks may result from increasing
commodity prices”, said ZEW President Wolfgang Franz “These price increases could lead to
second round effects that could then force the ECB to adopt a more restrictive monetary
policy”.
Over in the United States, we had the Trade Balance out, which showed the deficit slightly
narrowing in February to $45.8 billion as both exports and imports had declined.
Reposts showed exports fell 1.4 %in February, with every major category seeing declines.
The auto industry, where exports have been quite solid as of late, will obviously be a lot
more volatile than usual following on from the impact from Japan’s earthquakes. As a result,
expect auto imports for March to decline again as a lot of Japanese inventory was destroyed
or delayed by the earthquakes.
We also need to take into consideration higher oil prices, which will likely rise in the next
few months. This suggests that the trade deficit will more than likely widen in March. This
could come from increased household demand if job growths lift consumer spending. Of
course, due to rising food and gas prices, consumer spending could well be rather curbed.
IN THE UK
- Sterling falls against euro and US dollar as UK inflation data falls unexpectedly to 4% in March from 4.4%
- March house prices in England and Wales decline and slow further in March, the RICS data showed yesterday
- Pound falls to a low of €1.1218 and targets Oct 2010 low of €1.1184 as chances of near term interest rate rises diminish
- Weak retail sales to weigh on UK growth expectations and Cable hits a one-week low of $1.6226
- Employment data this morning is slightly better than expected, but does little to cover up the problems elsewhere and sterling remains largely unchanged
ELSEWHERE
- German ZEW (economic sentiment) falls sharply in April to 7.6 from 14.1 in March. Analysts were forecasting a drop to 10.0.
- Canada holds interest rates at 1% as expected and BoC see inflation hitting target 6 months early, however are concerned about the relative high strength on the Canadian dollar as commodities continues to increase, especially oil.
- Slightly more hawkish comments from Fed yesterday, Bullard mentioned finishing QE2
- US trade deficit shrinks in February as both imports and exports fell, down to $45.8billion from $47 billion in January
DATA TO LOOK OUT FOR
- Euro-Zone Industrial Production (MoM) due out at 10.00am.
- US Retail Sales for March due out at 1.30pm. Could well see some risk appetite back in the market should we see positive figures
- 3.30pm sees the Canadian Monetary Policy report. Will the CAD continue to strengthen??
- President Obama speaks toady about plans for reducing long term deficit reduction
- EIA Crude Oil stock change will carry more significance than usual as oil sits on 3 year highs and Middle East pressures still remain
|
Current Spot Rates (9.00am)
13th April 2011 |
|
|
|
|
|
|
|
USD |
EUR |
AUD |
CAD |
CHF |
SEK |
ZAR |
JPY |
|
GBP |
1.6279 |
1.1233 |
1.5532 |
1.5667 |
1.4613 |
10.18 |
10.98 |
136.629 |
|
USD |
|
1.4493 |
0.9541 |
0.9624 |
0.8977 |
6.25 |
6.74 |
83.930 |
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.
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