Gordon Brown

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).

On Wednesday the UK saw the release of unemployment data which pushed Sterling into

the red across the board. The jobless total in the UK fell by 336,000 to 2.46M, in the three

months to March, matching a level not seen since September 2010. The market reacted in a

negative way towards GBP as the number was accompanied by a downward revision to

March’s numbers and those seeking jobseekers’ allowance rose by 12,400 to 1.47M for

April. The UK labour market can be seen to be stuck between a rock and a hard place. As

part of the government’s austerity measures, 330,000 public sector jobs are cut and reliance

is placed upon the private sector to help in the regeneration process. However, with the

economy showing signs of little growth and the on-going rise in energy prices, companies are

unwilling to expand their workforce.

“We believe that private sector companies will become increasingly careful in their

employment plans in the face of a struggling economy and elevated input costs,” said

the chief UK economist at HIS Global Insight.

The publication of the Bank of England’s minutes showed the committee voted 6 to 3 in

favour of keeping interest rates on hold at 0.5%. The 5th May meeting was the last

attended by Andrew Sentence, who has been the chief advocator for a rate increase over

recent times. He is to be replaced by Ben Broadbent, who is widely expected to be of the

opinion of the majority of the members. If this is the case, it could be highly likely that the

bank will likely delay any rate rise now until external pressures on prices ease off and wages

begin to grow in real terms. Once consumer demand starts showing signs of recovery and

the economy moves consistently in the right direction, the central bank can start tightening

policy without the risk of plunging the U.K. back into recession.

“ So the MPC has lost its arch-hawk, and while there are still members in favour of higher

interest rates, nobody, for now at least, seems to want to run with the monetary policy

tightening baton with the gusto that Sentence did,” said Global Insight.

GBP/USD saw a session low of 1.6104 whilst GBP/EUR hit 1.1309 on a day that saw an

overall negative view over the Pound. Opinions in the market were that this negative view

may be the shape of things to come, given the Bank of England’s interest rate policy. One scenario

shows that low interest rates will stand out in a global market where policy is being

tightened in many major economies. The pound may not be seen as attractive to investors

given a back drop of high inflation, low growth and a central bank that has chosen an

incorrect route of correction.

IN THE UK

• MPC vote 6-3 to leave interest rates on hold, rumours were running just before the announcement that Martin Weale who has previously voted for hikes was to change back to a ‘no change’ vote resulting in a 7-2 vote.
• The pound hits a low of 1.6104 against the US dollar after negative market sentiment stemming from poor unemployment figures.
• GBP finishes in the red across the board, falling 0.6% vs. euro.
• UK Nationwide Consumer confidence falls overnight to just 4 points off an all-time low and the outlook remains tough.
• This morning UK Retail Sales released match analyst’s expectation of 1.1%, factors such as good weather and royal wedding are said to have contributed. Sterling makes slight gains immediately after the announcement.  

ELSEWHERE

• Japan enters technical recession as GDP falls to -0.9% for Q1, although earthquake is partly to blame, the majority of Q1 activity was before the quake and this means that Q2 could be even worse.
• Euro finds some hesitant support despite being held back by rumours regarding Greek debt restructuring.
• US Dollar helped by market sentiment as opposed to data releases.  MBA Mortgage applications for May come in below expectation.
• European construction output falls Year on year for March, but fails to dent EUR/GBP strength.
• Higher shares & commodity prices help bolster the Euro.
• EUR/USD fails to break through key technical levels, prompting profit taking.
• In a TV report yesterday, Greece claim to have no desire to revert back to Drachma but future seems bleak as necessary rises in tax, lowered wages, increased retirement age to remain in the euro could lead the country into civil war.  
• In the US, the Fed minutes reveal no surprises, however have started planning their exit arrangements for QE2
• Strauss-Kahn resigns as head of the IMF, lots of names suggested to replace him including the UK’s Gordon Brown.  

DATA TO LOOK OUT FOR

• At 11.00am UK CBI Industrial Trends survey is published and is expected to improve to -5 from -11 last month.  
• ECB President Jean Claude Trichet speaks today at 2.00pm, markets will be monitoring his words regarding interest rates closely
• Philadelphia Fed Manufacturing Survey is released in the US at 3.00pm and serves as a useful indicator of manufacturing conditions in the US, a figure above the expected 20.0 might suggest that nationwide manufacturing is improving and would subsequently effect the outlook for the US dollar
• Negative Existing Home Sales data at 3.00pm in the US may pull back any early strength from the Greenback.  

 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.

Yesterday saw Sterling continue to fall against both the Euro and USD, as continued fears regarding fiscal issues and the future political state of the UK.

This weakness came even though Gordon Brown was backed by fellow Labour ministers to remain in power, after an attempt to out him from leadership by way of secret ballot, failed to perspire.  This failure left the doors open for a possibility of a ‘Hung Parliament’ when the election arises within the next 5 months.  A ‘Hung Parliament, could show instability within the leadership of the UK, and with each party having different views on policies, could show disagreement on future political decisions.

This will not help Sterling and simply adds to the list of negatives, which already include the poor fiscal state in the UK as well as the possibility of the UK’s AAA Sovereign rating being downgraded.  Sterling was down by the afternoon session and traded at a 1 week low of $1.5896 USD, whilst trading slightly lower in the late morning at €1.1079 EUR.

Sterling made some minimal gains to €1.1121 EUR, and $1.6036. These gains were supported by Halifax showing UK house prices rose1% in December, a sixth month consecutive gain. Quantitative easing was left unchanged at a record £200 Billion, and Interest rates remained at 0.5% and are likely to remain without increase until at least February.

Sterling hit a 25 year low €1.7309 against the Aussie Dollar (AUD), as strong retail sales boosted chances of a further Interest rate increase strengthened it.

All eyes in the UK are still fixed on 26^th January, which will see the UK release it’s 4^th Quarter GDP estimate.  We are expected to see a growth, and any change in this prediction, could way heavily on Sterling.

This morning sees the release of Producer Price Index in the UK.  In the Eurozone data release GDP revised 3^rd Quarter figures, Unemployment Rate, and Industrial Production .  In the afternoon session via the USA we will see Average Hourly Earnings, Nonfarm Payrolls and Unemployment Rate.