Mervyn King

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 lost ground against a host of major currencies yesterday, most notably the Euro and the Dollar. Sterling struggled following positive US data which triggered market orders which were exaggerated by thin trading conditions. 

Sterling was also under pressure following an unexpected slowdown in UK consumer inflation in July which contributed to the downward pressure on sterling. 

Annual UK CPI slowed to 3.1% in July from 3.2% in June. The reading was the lowest since February, but was the eighth straight month that it has exceeded the Bank of England's 2% target. Of particular interest now to people with final salary pension schemes on which future indexation of deferred benefits and pensions will be based. 

However Inflation is still above the Bank of England’s inflation target of 2% and Mervyn King was quick to point out that the slowdown was due to temporary factors. King said in his letter to the finance minister which is required when the reading is above 3% that that higher inflation was due to a rise in value-added tax, higher oil prices and a weaker currency. He also mentioned that in the medium term the readings were likely to be similar with inflation close to or just below target. 

Analysts said that the numbers were not likely to change the dovish stance of the Bank of England. 

The afternoon trading was in contrast to the morning yesterday with sterling pushing $1.57 in the morning but being turned on its head after lunch with the outlook turning from positive to negative. 

By 16.00hrs sterling had fallen 0.5% on the day versus the US Dollar to $1.5585 having fallen as low as $1.5563. Traders reported selling from a major US bank on the down side of 1.56 as a key driver within the thin trading conditions. 

The outlook for sterling is looking much less positive against the US Dollar, however traders said that if sterling can remain above 1.55, its 200 day moving average, it would remain supported. 

Against the Euro sterling was also trading lower. Sterling lost 0.8% in trading yesterday falling as low as €1.2108 dropping away from a recent high of 1.2247 hit on Monday. Sterling continued its fall this morning dropping through the 1.21 level bottoming out this morning at €1.2070 with traders eyeing further possible losses. 

The Euro was also given a helping hand by Ireland after they managed to sell €1.5b in government bonds even as investors remain concerned about the country's banking sector, which suggested improving risk appetite. 

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.

The focus yesterday was on the Bank of England’s quarterly inflation report which revealed their forecast for inflation would fall well below its 2% target in two years time. In the near term this is due to increase as a rise in VAT due next year and higher commodity prices will push this figure up. The central bank cut its forecast for the UK economic growth for the upcoming year as there is still uncertainty about the economic outlook for the UK.

Mervyn King who is known for his dovish stance was quoted as saying "We're going through a long period of recovery that will take several years before we adjust back to anything we can call remotely normal," it was also suggested their policy decisions could still move in either direction as prospects were still highly uncertain. King said if needed the central bank will buy more assets to stimulate the economy. Analysts still believe the BoE will continue to hold interest rates at the current record low of 0.5% for some time to come but the next release of the BoE’s minutes will show whether any other committee members followed Andrew Sentence into voting for a rate increase to 0.75%.

Initial reaction after the announcement saw sterling fall most notably against the dollar as it hit a day’s low of $1.5630 against the earlier session high of $1.5861 overall a day’s loss of 1.4% the biggest day loss since mid May. This was mainly due to the inflation report but was not helped by weaker than expected jobless data in the UK. It showed the number of people claiming jobless benefit fell by 3,800 in July after a downwardly revised drop of 15,900 in June and well below the forecast of 15,000.

Overall the pound has gained 10% against the dollar after the year’s low of $1.4231 achieved on the 20th of May. This was due to the emergency budget which was put into place to cut the spiralling UK deficit. The pound has fallen over 1.6% this week alone amid increasing signs the budget cuts may dent growth for the UK.

A report on consumer confidence by Nationwide building society also showed a fall as it hit 56 in July down from 63 in June the lowest figure since May 2009.

Elsewhere the dollar made significant gains against majority of its trading pairs after the

Fed said on Tuesday it would use cash from maturing mortgage bonds to buy more government debt a small step to help an already struggling economy. It did help to boost the Greenback as risk aversion returned to the market as we saw the dollar strength by over 2% against the euro.

Sterling fared better against the euro in afternoon trading as the euro weakened to a 1 month low. The euro fell under its support level of 82.45 pence (€1.2128) with analysts predicting this may lead to further losses for the euro.

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.

Continuing our daily look at factors affecting currencies allows 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.   

Thursday saw the pound maintaining a narrow range from earlier in the week and rallied to a high of $1.4837, whilst hovering around the mid €1.19’s against the euro.

Sterling is likely to face increased volatility over the next week as the new coalition government is scheduled to release its budget statement and the Bank of England, its policy meeting minutes on Wednesday. Mervyn King has also expressed interest in supporting the central bank with regards to increasing interest rates from the record lows as it plans to scale back its asset purchase program.

However, retail sales in May jumped 0.6% month on month, compared to a consensus forecast of a 0.1% gain. It was up 1% on a three-month/three month basis, although this was inflated due to sales being hit hard earlier in the year by very bad weather.

Nevertheless, it looks like consumer spending is going to be making a decent contribution to GDP growth in the second quarter, although with consumer incomes about to be hit by rising taxes and cuts in public sector employment and wages, the resilience could be in question. But for now, the momentum of the consumer keeps going forth.

The UK Consumer Price Index fell 0.2% last month, the largest decline since December 2008, after dipping 0.1% in April. This followed data showing prices falling by farms, factories and refineries. The threat of inflation though, is becoming more of a distant threat as the economy is showing signs of a revival from the longest and deepest recession since the 1930s.

In the EU, the European Central Bank monthly report, have reiterated that current interest rates remain at an “appropriate” level and that the governments operating under the single currency must take necessary steps in order to diminish “fiscal vulnerability” and manage their public finances.

The ECB also continued to see a risk for an “uneven” recovery as policy makers try and reduce the budget deficit, while the central bank maintained their dovish outlook on inflation.

Construction in the Eurozone slipped 0.3% in April after it had expanded by a revised 6.5% the previous month to make the third drop in the last four months, while outputs also tumbled by 6.1% from the previous year after falling 6% in March.

The Greenback weakened across the board and may continue to lose ground as risk appetite seems to be flooding back in. Consumer prices in the world’s largest economy are also expected to drop to a pace of 2% in May from 2.2% the previous month and of course, this slower pace of price growth could weigh on interest rate expectations. Adding to this, initial jobless claims are expected to fall back to 450K during the first two-weeks of June, while the leading indicator is expected to expand 0.4% in May after slipping 0.1% in the previous month. This could again spark increased volatility as investors weigh the prospects for a sustainable recovery in the US.

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 to avoid the offshore casino.