QROPS update 6th 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).

The pound started the day on Thursday at a one year low against the Euro still being hurt by

the disappointing UK servicers PMI data released on Wednesday. We had the release of the

Bank of England’s rate decision which saw them announce that the base rate would remain

at the historic low of 0.5%, which was widely predicted. Disappointing Q1 GDP growth

coupled with March’s sharp fall in inflation meant there was little chance of the MPC

increasing interest rates yesterday.

The growth outlook has become increasingly uncertain in light of this week’s more subdued

PMI surveys which point to meagre GDP growth in the second quarter as well. Given the

weak growth backdrop we could easily see some of the more hawkish members move back

towards the middle ground. Yesterday was Andrew Sentence’s final meeting as an external

member on the MPC. Over the past few months, Sentence has been the committee member

most concerned about inflation risks and he was one of the first to vote for an increase in

interest rates. Yet the irony is that throughout his three year term, the bank never raised

interest rates.

There had been a sense that momentum was building towards a rate rise this month,

because of the threat from high inflation to the Bank’s credibility but a raft of weak

economic data in the past month has poured cold water on that.

Next up was the ECB rate announcement which saw them keep rates on hold at 1.25%. As

usually Jean-Claude Trichet spoke after and interestingly held back from indicating that an

interest rate hike was likely next month. Investors had been expecting Trichet to say the ECB

was practising “strong vigilance” over inflation, which in the past has been a key phrase to

flag a rate increase the following month.

Instead he told a press briefing that the bank would “monitor very closely” the risk of higher

inflation before deciding another increase. Traders interpret that expression to mean no

increase before July at the earliest. With the expectations of a June rate hike diminished, the

euro slid around a cent and a half against the dollar to hit a low of $1.4583. GBP/EUR also

made gains hitting a high of €1.1247.

IN THE UK

• UK PMI Services falls to 54.3 from 57.1 completing a hat-trick of negative PMI figures causing the pound to fall across the board.
• Bank of England leave interest rates on hold at 0.5% and asset purchases at £200bn as expected.
• After lunch, the pound enjoys sudden euro weakness and moves from mid €1.10’s to hit a late yesterday high of €1.1280
• After weeks of poor data, this morning UK PPI comes out better than expected for both input and output figures, however sterling remains largely unchanged.  

ELSEWHERE

• German factory orders fall significantly in March, figure released is -4.0% and euro gains begin to falter.  
• ECB leave rates unchanged at 1.25%, but following press conference reveals more dovish stance than expected.
• Wording “very close monitoring” was used and implies no increase in rates next month and focus moves to June 9^th speech.
• Euro falls immediately after the comments, EURUSD drops from $1.4814 to $1.496 and opens this morning at $1.4556
• Since the start of the euro, there have only been 14 days with a steeper fall than yesterday.
• US Fed member Kocherlakota say rising US inflation warrants a 50bps rise in US rates.
• RBA raise underlying inflation forecast, increasing speculation of an Australian rate rise.  

DATA TO LOOK OUT FOR

• At 10.30am Bank of England Governor Mervyn King addresses a press conference; historically his comments have driven the pound lower.
• German Industrial Production data is released this morning, yesterday’s production figures fell sharply so today’s could have a greater effect than normal, consensus is for a fall to 0.5%, any less will put more pressure on the euro.
• 1.30pm sees the release of the US Non-Farm Payrolls, after Wednesday’s employment figures the data will be closely scrutinised and could see the dollar move in either direction.
• At 3.00pm fed member William Dudley speaks. 

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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