Sterling Falls - European Equities Close Near To The Ground

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).

Wednesday saw UK trade deficit narrow in January to its smallest in nearly a year, which was largely put down to record exports of oil which helped drive a recovery from the worst reading on record in December. This helped sterling climb 0.3% against the Euro hitting a high of 1.1676 before retracing and spending most of the day around the 1.1650 level.

This improvement will help provide some relief to policymakers who were hoping that the trade deficit will help spur on the economic recovery. Britain’s goods trade deficit narrowed to £7.03bn in January from the poor £9.69bn in December, Economists had forecast a more modest fall to £8.5bn. Economists did however caution that the monthly trade figures were always volatile and December’s worst ever recording was largely caused by the severe weather that caused so many disruptions.

“Today’s number is encouraging bit there is clearly a lot of short term volatility in these figures” said an economist at RBS.

“The underlying positive is still that trade is making only a relatively modest contribution to

GDP growth”

Elsewhere the Euro weakened as the cost of insuring against a default in Portuguese government debt rose to its highest level since January as well as Greek unemployment hit a record high. This caused EUR/USD to fall back to a level seen last week before Jean Claude

Trichet came out with his “strong vigilance” a comment used throughout 2005-2008’s rate tightening cycle which paved the way for rate increasing at the next meeting. EUR/USD fell to a level of $1.3856 as a result.

In recent months the Euro has pushed higher on the back of interest rate expectations, the debt crisis is starting to remerge but if we are being honest it never really went away it was just brushed under the carpet.

As a result of the European debt problems this has seen dollar strengthen, causing GBP/USD to fall to a level of $1.6140, the main question will be is if the dollar can maintain the move?

A lot of economists think the prospect of Fed rate expectations is a long way away compared to the UK and Europe and predict this could cause dollar weakness in the coming months.

IN THE UK

• UK Manufacturing Production m/m shows 1% increase rising by its fastest pace in 10 months.
• Industrial production Year on Year rises to 4.4% against the previous release of 3.7%.
• The pound rallies in the morning on an outside chance the BoE will make a rate hike.
• Bank of England rate decision remains unchanged at record low of 0.5% with no further increase to quantitative easing.
• Investors who were pricing in chances of at least three rate hikes in 2011 have started to pare back some of those expectations.
• Sterling falls against the euro and dollar, dropping to lows of €1.1621 and $1.60407 respectively, over the course of the day

ELSEWHERE

• JPY loses ground following a severe earthquake, with more uncertainty sure to follow.

• European equities close at lowest level year to date.
• The euro comes under broad selling pressure after a cut to Spain’s credit rating highlighted the debt problems faced by several euro zone countries.
• Portuguese 10yr bond increases by 7.68%.
• ECB still expected to raise rates as early as next month which will strengthen the euro further.
• US Unemployment Claims increase by 22k.
  

DATA TO LOOK OUT FOR

• UK Producer Price Index expected to indicate increase in the cost of domestic production.
• US retail sales figures at 1:30pm. Expectations are low, which could prove beneficial for the pound.
• Preliminary assessment of US consumer sentiment at 14:55.
  

Current Spot Rates (9.00am) 11th March 2011
	USD	EUR	AUD	CAD	CHF	SEK	ZAR	JPY
GBP	1.60486	1.1604	1.6027	1.5622	1.4979	10.245	11.07	132.785
USD		1.3836	0.9955	0.9690	0.9322	6.37	6.89	82.877

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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