Middle East

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  

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).

Consumer prices rose 4.4% in February from a year earlier after a 4% increase in January, the Office for National Statistics said today in London. That’s the highest level since October 2008.

The pound rose for a fourth day in the longest stretch of advances since January after a government report showed U.K. inflation accelerated to the fastest pace in more than two years, adding pressure on the Bank of England to increase its benchmark interest rate.

“If we see a close above $1.64, the pound could come into its own a little bit and especially given that we’ve got MPC minutes tomorrow and we’ve got the U.K. budget, which can throw the pound around,” said an Investec spokesperson.

However, others have said that bearish members of the MPC will do little to change their minds following today’s data as they believe inflation is due to external factors that an interest rate hike will not change.

ECB Executive Board member Gertrude Tumpel-Gugerell and Governing Council member Yves Mersch both said yesterday that “strong vigilance” is necessary to keep a lid on inflation, a phrase the central bank uses to signal a rate increase is imminent.

The Euro rose above $1.42 for the first time since November and government bonds declined as investors increased bets on higher ECB borrowing costs. Yesterday afternoon however saw the shared currency erase gains against the greenback as investors speculated Ireland’s banks would have trouble repaying debt, sending Irish two year note yields to 10%.

The Euro fell 0.2% to $1.4193.

The Dollar Index, which tracks the U.S. currency against six major peers, touched a 15-month low as investors sought higher- yielding assets. With stock markets recovering after the Japanese tragedy, investors are looking for healthier yields as the markets begin to settle.

However, eyes must be kept on the Libyan crisis to see how things develop; with the dollar possibly gaining back loses if matters escalate.

Today all eyes will upon the UK as we wait for the Bank of England minutes and Budget report. If positive we can expect Sterling to maintain its momentum in the market and Cable will be looking towards the top of the trading range to 1.65285.

In the US we have new home sales expected worse at 5.6% compared to a previous 17.5%, showing that the US economy is still under pressure. European consumer confidence will be released at 1500 GMT with reports expected to come out slightly better at -11% compared to -11.2%.

Finally New Zealand GDP figures will come out at 2145.

IN THE UK

• CPI report show inflation rising to 4.4% in the UK, the highest since October 2008,  Retail price index also rose to 1%,
• The pound rises to a high of $1.6403 against US dollar and continues to reverse loses against the euro, pushing to a high of €1.1549
• This morning, minutes from the last BoE policy meeting reveal a 6-3 vote on raising interest as per last meeting; sterling begins to fall as chances of a rise soon are pushed back.  

ELSEWHERE

• Japan’s nuclear crisis mainly unchanged and still raises concerns as locals are advised to avoid food from area and reports suggest contaminated drinking water heading to Tokyo
• Knock-on effects of Japan’s earthquake have hit US as GM temporarily lay off staff due to lack of new parts coming from Japan
• EU members begin to signal that a European rate increase will be imminent but euro falls below $1.42 against US dollar
• USD falls against majors as markets begin to settle and investors seek higher yield investments, SGD, AUD and NZD see gains
• Middle East troubles continue as Yemen now at threat of civil war, risky assets may only be seeing temporary attraction.
• US Fed member Richard W Fisher says that no further QE is needed and Fed have to wind back stimulus to improve economy
• Euro zone debt concerns return to the headlines, Portugal may be forced to accept bailout if new austerity measures are not passed today  

DATA TO LOOK OUT FOR

• Markets will be keen to see how George Osborne juggles a stale economy and huge deficit in the UK budget starting at 12.30pm
• US home sales expected at 5.6% compared to a previous 17.5%, showing the US housing market is still struggling.
• EU Consumer confidence expected to come out slightly stronger at -11%.
• Fed’s Ben Bernanke speaks today and may re-iterate Fisher’s comments  

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 slumped to a 5 week low €1.1577 against the euro on Monday, as the battle as to who will increase interest rates first continued to sway investors towards euro buying.

Yesterday was a fairly quiet day for key data release, however ECB President Jean Claude Trichet reiterated that they must do whatever necessary to avoid further inflation effects which supported the single currency. This comes after Trichet’s shock comments on Friday in regards to the euro zone increasing their interest rates as early as next month.

Sterling has been performing strongly so far this year, however setbacks such as Q4 GDP figures amongst weak services sector data have caused investors to ease on their positive

Sterling outlook for the time being, and with the BoE falling 2nd to the ECB in the Rate Hike story, sterling is suffering.

The overnight interest rate swap market is pricing in a 25 basis point UK rate rise from a record low 0.5% in June or July, having shifted from May or June. One additional hike is fully priced in by the end of the year.

However up until yesterday afternoon the pound’s performance is still fairly positive against the dollar, nearly breaking through the 13 month high $1.6341 hit last week. Traders said its inability to extend gains beyond a 13-month high had lured some sterling sellers, including Middle Eastern names, into the market. After sterling’s failure to break resistance, it spiralled down as low as $1.6180, a 1 week low.

Interest Rate Expectations against Risk Appetite

The dollar usually opted into during times associated with risk, seems to have been dumped of recent as the interest rates in the US don’t seem like they will be hiked anytime soon, and recent economic data has been fairly weak. Interest rates now seem to have been the main factor influencing investor’s decisions, and risk associated trading has taken a back seat for now.

While rising tension in the Middle East and North Africa have sent crude prices skyrocketing, as well as hurt developed market equities, the US dollar has failed to benefit from this rise in risk aversion. This has many questioning the greenback’s status as a safe haven.

When Israel announced that Iranian ships would travel the Suez Canal, the EUR/USD rallied and similarly, when Egyptians were demanding the resignation of Hosni Mubarak, the EUR/USD strengthened, and then sold off after he stepped down.

The Swiss franc and Japanese yen have also acted as important safe haven currencies recently.

Summary:

IN THE UK

• Sterling weakens against the majors, in particular from $1.6341 to a 1 week low $1.6180 against the US dollar and €1.1577, a 5 week low against the euro
• MPC member Andrew Sentence stands down in May, being replaced by fellow hawk, Ben Broadbent, investors wait to see his stance.
• UK rate hikes now look likely to be for June or July rather than May which was previously predicted
• UK BRC Retail Sales Figures show a 0.4% decline is sales in shops open more than a year, January’s figures showed a rise of 2.3%
• The latest RICS survey shows that the number of surveyors that think UK house prices are falling continues to outnumber those who don’t.

ELSEWHERE

• ECB President Jean Claude Trichet reiterated that they must do whatever necessary to avoid further inflation effects.
• Greece hit back against Moody’s ratings drop, saying it is completely unjustified and puts them below Egypt
• The euro zone could increase rates as early as April, putting them in front of the UK in the battle to increase rates
• Markets are beginning to take the view that risk appetite is playing “second fiddle” to interest rate expectations. Despite global unrest and rising oil prices, the US dollar is failing to make gains against the euro. The euro on the other hand has seen support and hit a 4 month high of $1.4035

DATA TO LOOK OUT FOR

• Another fairly limited day includes German Factory Orders at 11.00
• ECB members Weber and Nowotny speak this morning.
• At 1.15pm Housing Starts data in Canada is released, this is a good gauge of the Canadian housing market and could influence CAD value
• UK BRC Shop Price Index for February is released tonight at midnight.

 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.