QROPS update 23rd September 2011 Pension drawdown & 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 income drawdown, flexible pensions or QROPS (Qualifying Recognised Overseas Pension Scheme) should be considered to maximise the Pension drawdown, 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, income drawdown now including flexible pensions, a QROPS and QNUPS (Qualifying non UK Pension schemes).

Sterling crashed to a 1 year low against the dollar on Thursday after the Federal Reserve

warned that the U.S economy is suffering from significant weakness, prompting investors to

sell off the riskier currencies in favour of safe havens. Sterling fell sharply to hit a low of

1.5327 against the highly liquid dollar, its lowest level since December last year. Against the

ultra safe haven Japanese yen, sterling hit a record low of 117.52.

Some analysts said the sharp falls looked overdone and there was potential for some short

term profit taking on the dollar. The medium term outlook remained bleak after the Bank of

England minutes on Wednesday confirmed policy makers increasing readiness to ease

monetary policy further by kick starting quantitative easing. Quantitative easing is widely

seen to be negative for the pound as it would flood the market with the UK currency.

The Federal Reserve warned of “significant downside risks” to the U.S economy but stopped

short of expanding its own balance sheet through more easing, sparking sharp falls in risk

related currencies including the pound. As a result of this sterling fell throughout the course

of the day to hit the low of 1.5327, joining the broad sell off in currencies which are

perceived to be risky. This is a sharp fall from Wednesday’s high of 1.5742.

“There’s just a mad scramble to own dollars today, standing in front of the dollar is like

standing in front of a moving bus. People are looking at what the Fed did last night and

saying there is no new money being made available” said a strategist at FX Pro.

“The Bank of England doesn’t help sterling, additional QE looks baked in the cake over the next couple of months. The global demand for dollars shows absolutely no sign of slowing and we could see $1.50 achieved in cable within a couple of weeks”

Adam Posen who is the Bank of England dove remained the only policy maker at the bank’s September meeting to vote for an extra 50 billion pounds in asset purchases but Wednesday’s minutes showed most members felt the case had strengthened for more asset purchases

immediately.

Posen was recently quoted in a newspaper interview that concerns about quantitative

easing fuelling inflation should not prevent central banks from implementing monetary

easing to boost the economy.

“I think the extent of the fall does suggest some sort of bounce back. That said, in this very,

very tense environment, demand for the dollar is going to be very strong” said Rabo Bank.

“Because there is a risk the Eurozone crisis might intensify there will be downside risk to

cable for quite a while. However that does not mean we cannot have some small rallies”

Sterling is likely to track the euro falls versus the dollar if the Eurozone debt crisis intensifies

because of the UK’s close trade and banking links with the currency bloc.

IN THE UK

• GBP/USD crashes to 1 year low hitting 1.5327
• The pound’s trade weighted index falls to a 2 month low of 78.4 as analysts expect more QE as soon as two months’ time, keeping the pound weak.
• Sterling falls to record low versus Yen, tumbling to 116.964
• UK CBI Factory orders weakens in September falling to -9 adding to the pound’s woes.
• Stock markets fall around the world, £65 million pounds is wiped off the price of UK shares

ELSEWHERE

• EUR/USD trims losses from 8 month low hitting a high of 1.3589
• Fed warning on economy fuels demand for liquid dollar causing it to rocket against a basket of currencies
• USD/CAD rises to 11 month highs hitting 1.0360
• Gold falls more than 4% as traders see the dollars as the better investment
• Speculation now mounting that ECB might be looking at reducing interest rates by 50bps at the Oct 6^th meeting, this would mark a dramatic turnaround in sentiment and would undoubtedly will have highly negative impact on the euro attractiveness.
• European equities open slightly higher this morning, recovering some of yesterday’s losses.
• The FT wrote this morning that the EU is planning to recapitalise 16 of the weakest European banks, no French banks were mentioned despite the recent reports of their unmanageable debt exposure

DATA TO LOOK OUT FOR

• Very quiet day for data today so markets will probably be shifted by trade volumes and comments from Finance officials.
• G20 meeting takes place, leaders will be urging European leaders to come to agreement on EFSF plans.
• This morning UK BBA mortgage approvals is released, last month’s figure of 33.4 was a slight rise on the month before, if figures continue to improve the pound could make headway.
• IMF leader Largard speaks at 5.15pm and ECB president Trichet speaks at 9.30, the markets will be closed by the time Trichet speaks but any negative comments on the Eurozone could affect what we wake up to on Monday morning.

 Gerard Associates Ltd advises UK residents, expats and people considering living abroad on the technical and currency options available for Pensions, pension income drawdown, flexible 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.