Andrew Sentence

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 should not have bothered showing up on Wednesday, as it fell to a six week low

against a host of currencies. The market made its judgement after the Bank of England

minutes showed policymakers forecasting a weaker outlook on growth and not ruling out

the need for further stimulus. Investors were of the same opinion that the resulting

commentary was more dovish than expected. The newly joined member, former Goldman

Sachs economist Ben Broadbent, voted in favour of leaving interest rates unchanged giving a

seven-to-two majority. This saw a change with the voting record as his predecessor, Andrew

Sentence, had been backing a half-point rate rise since February. Rates have remained at a

record low for twenty seven months and Chris Williamson, chief economist at Markit said

the minutes suggested they would stay at 0.5%, with any change more likely to be a further

round of quantitative easing than a rate rise.

“Together with the more dovish composition of the MPC, this suggests the chances of

interest rates rising this year have decreased and the chance of additional stimulus have

risen,” he said.

Despite the majority voting to leave rates on hold, the minutes also showed that the worry

of the rise in inflation was also in the forefront of the meeting. Official figures showed that

consumer price inflation in May remained more than double the 2% target rate, at 4.5%.

Committee members conceded that it remained likely that it would continue to rise,

probably above 5%, before falling back again.

“It is clear that the Bank of England is not going to be raising rates any time soon and it’s no surprise sterling is weakening,” said a currency strategist at nabCapital.

The minutes cited some factors outside of the UK in influencing their decision-making. The

MPC pointed out that there was evidence of a slowdown in the global economy, contributed

to a degree by the tsunami in Japan, which would affect the UK’s recovery.

The Euro joined in the anti-Pound party as it enjoyed some decent gains in the run up to the

Greek confidence vote. However, it failed to find significant momentum after George

Papandreou, the Greek prime minister, survived his test in parliament. The news increased

the chances that the Greek government would be able to push through austerity measures

in an emergency budget, a necessity for obtaining €12bn of emergency funding. A deadline

of July 2nd has been set by European finance ministers for them to implement such

measures. Eurozone policymakers still have not agreed on the scope and the scale of a new

Greek aid package and failed to resolve the issue of whether private sector investors should

participate in any form of restructuring. Overall most investors are positive in their beliefs

that European policymakers will come up with a solution for Greece and will not allow it to

fail.

Across the pond, all eyes were focused on Ben Bernanke’s news conference and the

resulting comments on the slowing U.S. economy. According to some, the Fed

may cut the growth target to 2.7%, down from an earlier forecast of 3.1%. The key factors

behind such a reduction are the poor data releases in the employment and housing sector.

Some market watchers expect the Fed announcement to put pressure on the USD in the

near term. This could come off the back of a decision to let the second round of QE to finish

at the end of June (as scheduled) and the market looks to have already priced this in.

IN THE UK

• Minutes from the Bank of England’s June meeting came in more dovish than expected.
• GBP/USD drops to a low of 1.6091, on a day that sees Sterling fall against all major currencies.
• Ben Broadbent (replacing Andrew Sentence) votes giving a 7-2 majority in keeping rates on hold.
• Some BoE policymakers see chance of more QE if the UK economy continues to falter.

ELSEWHERE

• Euro could be set to test the 90 pence level against a struggling pound.
• Market sentiment sways towards the fact that EU policymakers will come through for Greece.
• Positive data from April’s Housing Price index in the States help the USD hold firm against both the EUR & GBP.
• FOMC meeting shows interest rates remain on hold in the States.
• Yesterday evening the press conference following the FOMC meeting reveals that the $600 asset buying programme QE2 finishes this month, there was no mention starting an additional bout of buying so for now, QE3 is off the radar causing the dollar to rally
• Bernanke said interest rates would remain low to help spur a struggling economy. Recovery appears to proceeding at a moderate pace but growth forecasts have been reduced and unemployment is expected to fall “very painfully slowly”
• Dollars post gains against the majors EUR/USD falls from over 1.44 to drop to a low of 1.4250, GBP/USD falls this morning to 1.6010
• Eurozone PMI Manufacturing and Services figures both released this morning below consensus, whilst the individual German figure for Services climbed to 58.3

DATA TO LOOK OUT FOR

• This morning the BBA issues the number of UK mortgage approvals in May, a slight improvement to 30.0k is expected
• 11.00am CBI distributive Trades Survey is released, the figure is expected to fall to 12
• Initial and Continuing Jobless Claims is released at 1.30 in the US, the numbers are likely to remain on par with last month
• New Homes Sales for May are published at 3.00pm. Consensus is for a fairly significant fall in May

• ECB Trichet’s Speech at 16.00 GMT.

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.

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).

Tuesday saw the euro rebound off its two-month low of $1.3968 recorded yesterday, hitting

a high of 1.4123 against the US Dollar in intra-day trading; 155 pips above that trough.

What helped lift the single currency this morning, were the positive economic data released

from Germany. Gross Domestic Product statistics from the strongest economy in the

European Union, met expectations to record a growth of 1.5% in the first quarter

from the previous quarter. The sequential growth rate accelerated sharply from the 0.4% expansion seen in the fourth quarter.

Meanwhile, the German IFO Business Climate index showed that confidence in economic

growth had not declined. In the first half of the trading session, EUR/USD dipped briefly by

almost 70 pips from an earlier high of 1.4068, after news that the Greek’s opposition leader

had rejected the government’s austerity plan. Some investors took the opportunity to buy

on the dip and helped buoy the Euro, further pushed by the positive German data.

Sterling was bruised after Moody’s had announced earlier in the morning that fourteen UK

banks were “on review for possible downgrade”. This was accompanied later by the release

of the UK public finance sector data for April. The data showed that the UK deficit had

indeed widened more than predicted. The figure came in at 7.713 billion pounds, around 2.5

billion pounds higher than the same month last year and in fact the highest ever reading for

a month of April.

“One-off factors affected borrowing this month, but it is clear from the downward revision

to last year’s borrowing figures that the Government’s deficit strategy is making headway in

dealing with our unsustainable deficit”, said a Treasury spokesman in a statement.

New Home Sales in the USA showed an unexpected rise in April, to notch their second

straight month of gains and increased prices, which offered some hope for the, till now,

stagnant housing market.

According to the Commerce Department, sales had increased 7.3% to a seasonally

adjusted 323,000 unit annual rate, the highest level since December, from an upwardly

revised 301,000-unit pace in March.

Economists had forecast an unchanged figure, previously reported at 300,000-unit rate. All

four regions recorded sales gains, with the West reporting a rise of 15.1%. All good

and well, however, compared to April last year, sales were down 23.1%.

“It suggests maybe we’re beginning to see some signs of stabilization in housing, but it’s too

early to say we’ve bottomed out”, said the chief macro strategist at Wells Fargo

Advisors in St Louis, Missouri.

While the report showed a positive light on the housing market, data ranging from retail

sales to industrial production have painted a picture of an economy, which is struggling to

regain momentum as the second quarter started, with the only bright spot being

employment.

IN THE UK

• Sterling bounces off a seven-week low and edges higher against the dollar, hitting a high of 1.6208
• Moody’s threat on UK bank downgrades, including Lloyds and RBS, initially slaps GBP
• UK Public borrowing higher than expected in April, showing that the UKL deficit had widened by around 2.5 billion pounds

ELSEWHERE

• Euro rises versus dollar for first time in three days as German IFO figures holds near a record high
• German GDP also met expectations to record a growth of 1.5 percent in the first quarter
• US New Home Sales showed at a four month high, rising unexpectedly to show second straight month of gains (7.3 percent in April) and helped the US dollar.

DATA TO LOOK OUT FOR

• 9.30 is a busy time for UK data, Total Business Investment, Index of Services, BBA Mortgage Approvals and most importantly this morning is the second estimate of Q1 GDP. The figures are expected to show that Q1 GDP remains at 0.5% as reported last month. The figure whilst low, still shows a significant improvement on 2010’s Q4 reading of -0.5%
• 12.00 US MBA Mortgage Applications, if the data shows an improvement will bolster the positive New Homes data released earlier in the week.
• At 12.40pm Bank of England policy maker Andrew Sentence addresses a conference in Jersey, as one of his last public meeting investors will be keen to hear his parting words regarding interest rates and his replacement.
• US Durable Goods Orders are released at 1.30pm, as the data follows the cost of orders of often high value items they are a good indicator of consumer sentiment within the US and can have a big effect on US dollar strength.

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.