International Foreign Exchange Report

Sterling fell on Tuesday as escalating political unrest in North Africa and the Middle East prompted investors to sell off risky assets and invest into safe havens. The pound was trading above $1.62 early in the session, however the risk aversion saw it slip to a 1 week low $1.6089.

"The enthusiasm for the pound has waned a little bit amid the search for safe havens, or at least the avoidance of risk currencies that do not offer upside on higher oil prices," said Daragh Maher, deputy head of global foreign exchange research, at Credit Agricole. Sterling had gained some support early on, from data showing Britain posted a bigger-thanexpected seasonal surplus on its January public sector net borrowing measure due to unusually strong annual growth in income tax receipts.

However aside from the political unrest in the Middle East, there were many other factors forcing investors to sell currencies perceived to be risky. Rising oil prices weighed on stocks and triggered profit taking on risky currencies. The Euro however was given a slight boost as European Central Bank policymaker Yves Mersch was quoted saying he would not be surprised if the bank sharpened its language on inflation. Sterling against the single currency after these Euro positives, down to €1.1793 from a session high €1.1925 The pounds losses were also put down to the risk associated with the BoE minutes due to be released today. BoE Governor Mervyn King said at a Feb 16th news conference that the MPC had seen a wider-than-usual range of views, though economists' consensus view is still for a repeat of January's voting pattern. The focus is now on whether a third MPC member will join Andrew Sentence and Martin Weale in voting for a rate hike. The February inflation report implied that interest rates would need to rise two or three times this year to maximise the chance of inflation returning to target. But with 2-year UK yields at 1.5 pct, the market looks quite stretched and is already being fairly aggressive. The initial impact of the speculation that rates may be hiked in the near term boosted investment in the pound, however analysts believe that this could leave sterling vulnerable to position adjustment, with the possibility of stalling the economy’s growth.

IN THE UK

• Sterling received early support as Public Sector Net Borrowing showed the sector was around £20bn better off MoM.
• Pound falls later on, risk aversion sets in after situation in Middle East worsens, dropping to a low of $1.6089 down from over $1.62 early on.
• Analysts await to see if a 3rd MPC member has joined the voting for a rate hike in the near term
• Rate hikes are generally seen as positive, however some investors believe they could stall economic recovery

ELSEWHERE

• The euro was helped yesterday after ECB member Yves Mersch made hawkish comments, in particular rising inflation and exit strategy, the euro strengthened to €1.1793 from €1.1925 against the pound
• Reports suggest that Portugal will have to seek a bailout in March/April
• Political unrest in North Africa and Middle East forces investors to dump risky assets and opt for safe havens, helping US dollar and gold.
• Rising oil prices weighed on stocks triggering profit taking on currencies perceived to be higher risk
• US consumer confidence figures showed a positive 70.4 figure, way up from the 63.0 consensus figure
• Against the dollar the euro moved from a low $1.3523 to a session high $1.37

DATA TO LOOK OUT FOR

• Headline data today is the release of the BoE minutes at 9.30am, if we see more than 2 votes for a rate increase the pound will rally
• Also at 9.30 BBA Mortgage Approvals will show how the UK housing market is shaping, buoyant housing data usually helps sterling
• In the US at 3.00pm, the US Existing Home Sales data is released, like the UK, good housing data will support the US dollar
• ECB’s Trichet speaks at 4.30pm, may discuss inflationary pressures, rate hikes and exit strategy.

Sterling Appears with Short-lived Gains as Pound reaches Higher against Euro

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 started Friday’s trading up against majority of its trading pairs, but these gains were short lived as speculation stalled with regards to the Bank of England increasing interest rates as there was a significant absence of clarity on the banks rate stance which was released on Thursday. The minutes from Thursday’s meeting will be released later in the month and it will show how the votes were cast for a rate hike and how close the bank really is to raising borrowing costs from the current record low of 0.5% which has not been changed since July 2007, as inflation pressures continue to mount.

Investors keenly await the release of the inflation report due next Wednesday where they will hopefully be able to gauge the Bank of England’s next move. Analysts may argue that signs of a pickup in inflation may not necessarily be positive for the pound. In addition to the inflation report we will see the release of UK consumer prices, retail sales and employment which will determine the pounds next moves.

Bank of England Governor Mervyn King has dismissed inflation risks as temporary, saying government spending cuts and slower than estimated economic growth will curb price pressures. Britain’s government has lowered spending and increased taxes to reduce the fiscal deficit from the estimated 10% of GDP in the year through to March.

The pound reached a day’s high of €1.1868 against the euro in the morning but by afternoon trading had fallen to a low of €1.1800. Sterling did not fare any better against the dollar as it fell from the high of $1.6111 to reach the day’s low of $1.5965 which was last achieved in late January.

The pound lost 0.6% against the dollar on Friday and has declined 0.7% this week but it must be noted overall this year it has advanced 2.5% against the greenback.

The UK released strong Producer Price Index data which showed input prices rose 13.4% on the year in January which was well above forecasts of 12.6%. It does highlight the on-going increase in inflation within the UK.

Risk aversion also continued within the markets as investors returned to the safe haven of the dollar amidst the increased political uncertainty in North Africa and the Middle East.

The US Thomson Reuters/University of Michigan index of consumer sentiment rose to 75.1 its highest level since June, from 74.2 in January.

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.

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Sterling Rises against Euro- Bank of England to Raise interest rates

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 rose to a three month high against the Euro as well as fresh highs against a host of other currencies following increased expectation the Bank of England will raise interest rates by the middle of this year.

Speculation of an interest rate rise has been growing since better UK data has been witnessed along with a more hawkish commentary from the Bank of England but most importantly since Martin Weale joined Andrew Sentance in voting for a 25 basis point hike at the last Monetary Policy Committee meeting.

The MPC meet again this week (Thursday) and although they are expected to keep rates at 0.5% at this juncture, investors have been pricing in a more increased chance of an interest rate rise, leading to sterling gaining significantly.

Markets are now fully pricing in a rate rise by May with a small chance of a rate hike this week. If there were a rate hike this week it would undoubtedly lead to significant sterling gains due to the surprise element.

Without the rate rise sterling could still gain if the commentary surrounding the meeting remains positive as it has in recent weeks.

Against the Euro yesterday sterling gained throughout the day hitting a day high of 1.1917 in early afternoon trade before retreating and at the close was around 1.1875.

Against the US dollar movements were much more timid with the dollar proving firmer with sterling hitting a day’s high of 1.6186 and closing trading at 1.6112 a long way from the three month high of 1.6279 seen last week.

Despite strong expectations of a rate rise, there are concerns that such an increase could unsettle an economic recovery. Analysts are worried that tax increases, spending cuts by the government and expected job losses in the public sector in the coming months could hurt economic growth.

However on the flip side data from the Commodity Futures Trading Commission show currency speculators have tripled their net long positions on sterling to 22,659 contracts in the week ending Feb. 1 from 7,888 in the previous week.

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.

QROPS

Recent gains of Sterling falters- Prices unexpectedly rise by 0.8%

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’s recent run of gains faltered in Friday trading as investors became cautious ahead the pending US jobs data which was released at 1:30pm.

The UK released positive housing data which showed house prices unexpectedly rose 0.8% in January which was well above market expectations for a flat reading. This data helps to ease some concerns over the housing sector but it still remains fragile after figures last week showed a large drop in mortgage approvals which is the main indicator for the market.

Sterling was given a helping hand last week as hawkish comments from the Bank of England kept adding fuel to the expectations the UK interest rates will rise from the current record low of 0.5%. The next Bank of England policy announcement is due on Thursday and this will be followed with the Bank’s quarterly inflation report due later in the month which may give more indication as to when a rate increase may occur.

"Sterling is highly sensitive to interest rate expectations and any strong data or hawkish Bank of England comments will push it higher," said an economist at AIB Group Treasury in Dublin.

Elsewhere the US released Nonfarm payrolls which came in lot lower then expected, payrolls grew by a disappointing 36,000 in January which was a lot lower then the predicted figure of 145,000, the unemployment rate in the US now stands at 9% down from 9.4% in December. This meant investors retreated and returned to the safe haven of the dollar and less riskier assets.

Some market participants also cited the dollar’s rally was due to US 10 year treasury yield as a catalyst to drive demand in the dollar.

The pound moved away from the 3 month high of $1.6279 against the dollar which was achieved on Thursday. Sterling traded between $1.6170, the days high to end the day’s trading near the low of $1.6038.

The euro came under broad selling pressure on Thursday after the European

Central Bank President dampened expectations the euro zone will be next to look to a hike in interest rates. This allowed sterling to trade above the €1.18

level through-out the day and it reached a day’s high of €1.1868.

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 QROPS advice – essential tools for your security.

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