Interest Rates in UK Stable - Earthquake Causes Turmoil Elsewhere

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).

A very volatile close to the week last week began on Thursday when many traders cut long positions as the bank of England decided not to raise interest rates, although the Bank of England were widely expected to keep rates on hold, there was a small chance and some traders had been positioned for an early rate hike.

Looking ahead, the markets are now only pricing a 50% chance of a rate hike in May and although it had been priced in fully for June, before Thursday’s decision, this has now been pushed back and a hike is fully priced into the market for August.

This was followed on Friday morning by the earth quake in Japan. This terrible natural disaster has been reflected in the currency markets by investors moving away from higher risk currencies and seeking out safe haven currencies, this inevitably leads to sterling losing further ground.

The gains that the Euro had already seen against sterling were given an extra boost on Friday, driving it another 0.5% higher to 1.1568, following comments from Jean Claude Trichet that the ECB may push Euro zone interest rates up as soon as April.

The markets widely expect a break through 1.1560 to lead to a test of the next resistance level of 1.1531.

Against the US dollar sterling has also struggled, only a week ago sterling was testing a new one year high of 1.6344, however over the course of last week and due to all the factors that have also driven sterling down against the Euro sterling was driven down to a 3 week low of 1.5977 on Friday afternoon before recovering to close the day at around 1.6030 avoiding a close under 1.60.

Data on Friday showed that British factory gate inflation rose to its highest annual rate in more than two years in February, led by surging oil and food prices. However, a dip in core output price inflation, which excludes volatile factors such as oil and food, eased some concerns about rising inflationary pressures.

Also on Friday mortgage lending fell more than expected in January due to "an unusual combination of factors", according to new data from the Council of Mortgage Lenders (CML).

The number of loans for home purchases fell to 28,500, 29% lower than December. While the CML says a fall over the New Year period is usually expected, "a decrease of this magnitude is greater than seasonal factors alone would explain."

With a lot of uncertainty in the markets continuing and the situation and damage in Japan still not clear, don’t be surprised to see a week of volatility ahead in the currency markets

IN THE UK

• Markets believe a rise in UK interest rates has now be pushed back and are pricing in August as the earliest.
• Sterling hits 3 week low vs USD of $1.5977 but recovers to close above $1.60.
• Mortgage lending falls compounding misery in the UK housing market.

ELSEWHERE

• The disaster in Japan obviously dominates the international news, investors watch as Nikkei falls 6.8%
• Japanese yen struggles in wake of earthquake, with high volatility likely moving forward
• Bank of Japan leaves interest rates at 0.1% and due to meet this morning to discuss ways of keeping the economy stable.
• This includes a record 15 trillion yen, roughly $200bn pumped into the economy and asset buying could increase to 10 trillion yen
• Euro zone leaders decide to increase lending capacity of EFSF to its full €440bn.
• Irish stress tests show a €25bn discrepancy in Irish banks books
• Eyes are focused on Portugal, no bailout announced but many feel it’s just a matter of time.

DATA TO LOOK OUT FOR

• Very little in scheduled announcements but markets will follow decisions made in Japan to help the public/industries effected.
• Euro Zone Industrial Production released this morning is expected rise to 0.4% and could help the euro continue recent rally

Current Spot Rates (9.00am) 14th March 2011
	USD	EUR	AUD	CAD	CHF	SEK	ZAR	JPY
GBP	1.6090	1.1544	1.5941	1.5632	1.4955	10.21	11.05	131.763
USD		1.3935	0.9907	0.9715	0.9295	6.35	6.87	81.891

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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