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.

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