Andrew Sentance

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 was edging closer to a fresh one month low vs the euro yesterday after the

International Monetary Fund agreed that the UK's fiscal tightening policy was the right

course of action, however they left the door open for further loose monetary policy giving

the Euro a further boost against sterling.

The IMF's annual review of the UK economic recovery said that the UK economic recovery

was broadly on track but highlighted that more quantitative easing may be required if

growth proves to be persistently weak.

Reaction to this report along with the likelihood that the Eurozone will highlight their next

interest announcement at the meeting this coming Thursday helped the Eurozone ignore

persistent worries over the state of Greece debt and move to a session high and close to a

fresh one month high against sterling of 1.1187.

With the MPC meeting on Thursday following a recent raft of poor data it is more that likely

that the MPC will highlight that UK interest rates should stay at a record low for months to

come. This will keep sterling under significant downward pressure across the board with the

prospect of an interest rate announcement the only thing to recently give sterling any

significant strength.

Thursday’s meeting will be the first without Andrew Sentance a famous hawk who was not

scared to air his opinion. In contrast he will be replaced by Ben Broadbent a former Goldman

Sachs economist who is not expected to challenge the other members, at least initially.

Against the US dollar the story was fairly similar with sterling dropping 0.5% yesterday at

1.6344. With the US economy also struggling and largely being ditched as a safe haven and

sterling expected to bounce back faster that the US economy we could see sterling continue

to test the mid to late 1.60's over the coming weeks.

Data on Friday showed U.S. jobs growth slowed sharply in May, reinforcing the view that the

world's largest economy is stuck in a soft patch and interest rates are likely to stay low well

into next year.

Investors' focus in the UK will be on retail sales data from the British Retail Consortium's

monthly survey released on Tuesday, which is likely to show a soft reading.

In contrast, the market has priced in two rate hikes before the end of the year from a

hawkish ECB as the euro zone's powerhouse economy Germany continues to grow and

inflation creeps higher.

Hopes of an interim solution to the Greek debt crisis helped lift the single currency last

week, although sentiment remains vulnerable to comments from euro zone policymakers.

The euro slipped earlier in Monday's session after a German finance ministry spokesman

said it was not certain whether there would be a second bailout for Greece and on what

terms.

IN THE UK

• Sterling edges towards a one month low vs the euro off the back of IMF comments
• IMF states that Quantitative Easing is still on option should the UK recovery does not pick up pace, but backs the Government’s spending cuts.
• MPC member and chief hawk Andrew Sentence out for Thursday’s policy meeting, Ben Broadbent in.
• Sterling rallies against USD pushing back through key level of 1.64
• Overnight Halifax House Price survey shows UK house prices rose by 0.1% in June, the news has little effect on the pound’s value.
• This morning UK BRC Retail Sales show that sales have declined by 2.1% after a promising April.

ELSEWHERE

• Euro gains as Germany indicate that the Eurozone will be able to overcome it’s debt crisis and ECB Trichet’s comments that he would allow Greece to extend bond maturities to help ease the pressure on them without classing it as a default
• EURUSD moves up on the news to one month highs of 1.4648
• The Aussie dollar falls slightly as RBA decide to keep interest rates on hold at 4.75%, saying current policy is appropriate.
• Swiss CPI comes in around consensus at 0.0%, meaning there is unlikely to be any change in Swiss rates in the near term.
• This morning EURUSD rises further as China FX official warns of risks in holding excessive US dollar assets because the US dollar is likely to weaken against the majors.

DATA TO LOOK OUT FOR

• At 10.00am this morning Eurozone Retail Sales are released, after a disappointing -1.0% March figure, April sales are expected to have risen to 0.3% and could provide the euro with more backing this morning.
• Germany Factory Orders are released at 11.00, again like above, March’s figures was a poor -4% and April’s are expected to show an improvement which is like to help the euro.
• This evening Consumer Credit Change figures are released in the US, an interesting figure as high borrowing shows that money is available to buy luxury items and help retail and manufacturing, however too much debt can lead the economy to overheat and consumers are living beyond their means. We will have to wait and see how the figures are digested.
• Fed’s Ben Bernanke speaks tonight, he comments are closely watched for clues on upcoming policy. Speculation is that US interest rates are likely to remain low well into next year, if he suggests something different the US dollar could see gains overnight. However if there is any mention of QE3 it could fall fast.

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.

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).

Wednesday started off with all eyes looking at the bank of England minutes that were released at 9.30am. As in February only three of the Monetary Policy Committee members were hawkish while the remainder decided that an increase was not yet appropriate. Of the six MPC members that voted to keep rates on hold at the historic low of 0.5% was Mervyn King, and it was Andrew Sentance, Spencer Dale and Martin Weale that again voted for a rate hike.

As usual Sentance voted for the biggest hike at 50 basis points which would move interest rates to 1%, Spencer and Dale voted for a more modest quarter point hike. This caused sterling to fall across the board eliminated gains made on Tuesday, causing GBP/EUR to fall to a low of €1.1460, before recovering and spending most of the day trading around the €1.15 level. GBP/USD also suffered as a result and slid to $1.6218 before recovering. The main reason for the sterling sell off was these minutes show doubts that there will be a May rate hike as it revealed that the Bank’s inflation expectations had not shifted much since the April meeting.

Next we had the all-important budget which helped sterling fall after chancellor George Osborne revealed that UK GDP growth forecast had been downgraded. The government’s forecast had previously been for UK growth of 2.1% for 2011 but Osborne revealed it had now been cut back to 1.7%. Sterling had closed Tuesday night at a year high against the dollar at 1.6401 however at 2.30pm it was trading around the 1.6250 level. It’s worth noting that over the next few months sterling could continue to be sold off as the governments spending cuts start to take their toll and the continued fears of a double dip recession continue to linger.

The Euro was also slightly weaker against the dollar and the yen as concerns over the state of public finances in the Euro zone is once again under the microscope. Disagreements in Portugal about the implementation of its stability programme came to a head with the prime minister saying he would step down if Wednesdays vote failed to agree on measures.

“With this political crisis looming the markets will be watching very closely and if the situation cannot be resolved amicably it can only signal bad news for the Portuguese economy and the euro,” said Investec Bank.

IN THE UK

• Sterling falls on doubts of a May interest rate hike after Bank of England vote 6-3 to keep rates at historic low of 0.5%
• UK Budget yesterday seen as a boost for some businesses, but not seen as a major fiscal event.
• George Osborne reveals UK GDP growth has been downgraded to 1.7% from 2.1% for 2011
• GBP/USD falls from the year high of $1.6401 to 1.6218 before recovering
• GBP/EUR loses previous gains made, falling nearly 1 cent to a low of €1.1460, before recovering spending most of the day at €1.15
• This morning UK Retail Sales fall to -0.8%, worse than expected causing sterling to fall in the last few minutes. 

ELSEWHERE

• Euro under pressure as Portugal’s debt woes are again under the microscope.
• Portugal’s Prime Minister resigns after voting goes against plans to change austerity measures, bailout looking very likely now.
• EU consumer confidence index worsened slightly to -10.6 in March, compared to the revised -10.0 it recorded the month prior
• US new home sales fall to lowest level since 1963 when records began tumbling 17% to a total of 250k sales
• Euro zone PMI Manufacturing falls, whilst PMI Services rises leaving the euro largely unchanged. 

DATA TO LOOK OUT FOR

• 12.30 sees US Initial Jobless Claims followed Durable Goods Orders, are expected to show a gain in orders which might help the dollar.
• A variety of important data is due out of Japan this evening; all eyes will be on this after the recent troubles.
• Key points to look out for over the next few days are Portugal’s potential bailout and Irish bank stress test results. Both could lead to extra funding required from the rescue fund. 

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.

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 suffered a blow in Friday’s trading as the UK released the revised GDP figures for Q4 of 2010. It showed the UK economy contracted by more than first thought in the last three months of  2010, the figure came in at -0.6% against the preliminary reading of -0.5%. It goes some way to reduce expectations of an interest rate rise by mid-year and highlights concerns about how the economy will deal with the pressure of rising inflation.

Sterling fell to a three week low of €1.1640 against the euro from the earlier high of €1.1706. Against the dollar sterling hit a low of $1.6033 down over a cent from the high of $1.6160.

Rate rise speculation has been rife over the last few weeks and has prompted a pile up in long positions that we will see sterling rise, analysts are now stating this weak data will prompt investors to cut these positions.

"The market is long good news, and if they don't get the good news sterling ... is really at risk of a correction, and I think we're seeing that correction now," said currency strategist at UBS.

Sterling was bolstered by the release of the Bank of England minutes on Wednesday which showed one more policy member had joined the hawk rank by voting for a rate rise. Increased bullishness among policymakers has supported the pound; some traders argue that the Bank of England’s stance may change when arch-hawk Andrew Sentance leaves the MPC in May.

Vicky Pryce, one of the candidates to succeed him has pointed out the risks of raising rates too soon in a newspaper column last week. After the minutes were released sterling seemed unable to hold on to the gains it achieved.

Elsewhere the euro was given a boost through-out last week’s trading after European Central Bank policy member Axel Weber stated on Thursday that the only direction the euro zone rates were going was up. Overall last week the single currency gained 2% over the week, its best performance since late October.

The US released GDP data on Friday which showed the US economy grew slower than first estimated in the fourth quarter of last year. It expanded at a 2.8% annual rate compared with earlier estimates of 3.2%.

The US also released consumer confidence for February which rose more than forecasts this month, it increased to 77.5 from 74.2 last month.

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.