QROPS update 11th May 2011 Pension Foreign exchange QROPS and QNUPS

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 was a day of mixed fortunes for the Pound as the positive sentiment felt in the

market during the early trading session slowly waned as the day unfolded. The British retail

sales data for the month of April showed a stronger than expected rise of 5.2%. This

number was the fastest annual pace in five years & was attributed to public holidays and the

warmest April on record.

As a result Sterling rose to a one month high against the Euro, with further help coming in

the form of renewed concerned over Eurozone sovereign debt. The Single Currency fell as

low as 87.21 pence (€1.1466) in early trading, its lowest level since April 6th but found some

footing after a media report outlined a new financial aid package for Greece.

“This week there’s been some demand for Sterling as a diversification against the Euro, and

we also had the positive retail sales which helped,” said a senior currency

strategist at Rabobank. “Sterling can get a little bit of a reward from the perceived fiscal

discipline of the British government….but it will be limited if we continue to see weak UK

data over the next few months.”

Positive news for the housing market followed, as a report showing a slowdown in the fall in

house prices offered short term support for the Pound. This sentiment was short lived as

the market turned its attention to upcoming data and a broader view of the UK’s economy.

Today sees The Bank of England release the UK’s inflation report, which the market

speculates will include a reduction in its economic growth forecast. The result of such

negative news would make a rise in interest rates highly unlikely and such sentiment would

be enough to weaken the Pound against both the Dollar and the Euro. Despite inflation

figures moving further ahead of the 2% limit, overall downbeat UK data that shows a

patchy recovery in the UK, should be enough for interest rates to remain on hold.

In Europe, whilst the Greek debt restructuring issue continued to weigh on market

sentiment the interest rate divergence between Britain and the Eurozone began to re-emerge

as a talking point. Due to economic woes traders are not pricing in a Bank of England rate hike

until December, having priced a mid-year increase back in January. In contrast, the

European Central Bank has already started raising rates and markets are pricing in two

quarter percentage point increases by December. 

IN THE UK

• British retail sales grow at fastest pace in 5 years and sterling initially rises to 1 month high of €1.1466 against euro
• The euro recovered slightly later in the session and the pair hovered around €1.14 mark for the rest of the day.
• GBP/USD fails to test the $1.6320 support level for the third time.
• The deficit in the UK Goods Trade Balance is expected to widen slightly to £7.5bn despite a weak pound which should make UK products seem cheaper overseas and boost export sales   

ELSEWHERE

• Positive US import price index (Year on year) helps USD climb against GBP but US Economy remains sluggish with unemployment at 9% of the labour force
• A lot of talk of Greece is circling around the markets as talk of a new bailout of €60bn is needed on top of last years bailout
• Suggestions are that Greece are completely bankrupt and wouldn’t be able to repay debts regardless of amounts of bailouts
• A member of the ECB warns that a default or a restructuring of Greek debt would crush Greece’s economy & impact the entire 17 nation Euro zone.
• Chinese inflation rises to 5.3%, meaning it has broken the 4% target every month for the last year, providing further backing by US Treasury’s Geithner that China needs to a stronger Yuan to contain prices and spur domestic demand.
• RBNZ Governor Ballard agrees with yesterdays comments that NZD is undesirably high, a fall would help struggling NZ economy  

DATA TO LOOK OUT FOR

• Main focus for sterling traders today is the Bank of England Quarterly Inflation Report and Governor King’s speech starting at 10.30am. What is key here is how the figures are interpreted and what clues King reveals about the Bank of England’s stance on interest rates moving in the summer. If the forecast on inflation stays high and the conference reveals plans to raise rates, the pound will move up
• 1.30pm US Trade Balance figures are released, the deficit is expected to widen as imports outweigh exports and the dollar may weaken. High oil prices may contribute to this and shows further how rising inflation is causing problems for the US economy.
• At 1.30pm Canada release International Merchandise Trade, a figure of is $0.5B is expected as Canadian exports grow.
• New Zealand Business PMI is released this evening at 11.30pm and is an important indicator of economic conditions in NZ 

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.

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