Pound Rises & Euro Also Rises Above $1.42 for The First Time

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).

Consumer prices rose 4.4% in February from a year earlier after a 4% increase in January, the Office for National Statistics said today in London. That’s the highest level since October 2008.

The pound rose for a fourth day in the longest stretch of advances since January after a government report showed U.K. inflation accelerated to the fastest pace in more than two years, adding pressure on the Bank of England to increase its benchmark interest rate.

“If we see a close above $1.64, the pound could come into its own a little bit and especially given that we’ve got MPC minutes tomorrow and we’ve got the U.K. budget, which can throw the pound around,” said an Investec spokesperson.

However, others have said that bearish members of the MPC will do little to change their minds following today’s data as they believe inflation is due to external factors that an interest rate hike will not change.

ECB Executive Board member Gertrude Tumpel-Gugerell and Governing Council member Yves Mersch both said yesterday that “strong vigilance” is necessary to keep a lid on inflation, a phrase the central bank uses to signal a rate increase is imminent.

The Euro rose above $1.42 for the first time since November and government bonds declined as investors increased bets on higher ECB borrowing costs. Yesterday afternoon however saw the shared currency erase gains against the greenback as investors speculated Ireland’s banks would have trouble repaying debt, sending Irish two year note yields to 10%.

The Euro fell 0.2% to $1.4193.

The Dollar Index, which tracks the U.S. currency against six major peers, touched a 15-month low as investors sought higher- yielding assets. With stock markets recovering after the Japanese tragedy, investors are looking for healthier yields as the markets begin to settle.

However, eyes must be kept on the Libyan crisis to see how things develop; with the dollar possibly gaining back loses if matters escalate.

Today all eyes will upon the UK as we wait for the Bank of England minutes and Budget report. If positive we can expect Sterling to maintain its momentum in the market and Cable will be looking towards the top of the trading range to 1.65285.

In the US we have new home sales expected worse at 5.6% compared to a previous 17.5%, showing that the US economy is still under pressure. European consumer confidence will be released at 1500 GMT with reports expected to come out slightly better at -11% compared to -11.2%.

Finally New Zealand GDP figures will come out at 2145.

IN THE UK

• CPI report show inflation rising to 4.4% in the UK, the highest since October 2008, Retail price index also rose to 1%,
• The pound rises to a high of $1.6403 against US dollar and continues to reverse loses against the euro, pushing to a high of €1.1549
• This morning, minutes from the last BoE policy meeting reveal a 6-3 vote on raising interest as per last meeting; sterling begins to fall as chances of a rise soon are pushed back.
  

ELSEWHERE

• Japan’s nuclear crisis mainly unchanged and still raises concerns as locals are advised to avoid food from area and reports suggest contaminated drinking water heading to Tokyo
• Knock-on effects of Japan’s earthquake have hit US as GM temporarily lay off staff due to lack of new parts coming from Japan
• EU members begin to signal that a European rate increase will be imminent but euro falls below $1.42 against US dollar
• USD falls against majors as markets begin to settle and investors seek higher yield investments, SGD, AUD and NZD see gains
• Middle East troubles continue as Yemen now at threat of civil war, risky assets may only be seeing temporary attraction.
• US Fed member Richard W Fisher says that no further QE is needed and Fed have to wind back stimulus to improve economy
• Euro zone debt concerns return to the headlines, Portugal may be forced to accept bailout if new austerity measures are not passed today

DATA TO LOOK OUT FOR

• Markets will be keen to see how George Osborne juggles a stale economy and huge deficit in the UK budget starting at 12.30pm
• US home sales expected at 5.6% compared to a previous 17.5%, showing the US housing market is still struggling.
• EU Consumer confidence expected to come out slightly stronger at -11%.
• Fed’s Ben Bernanke speaks today and may re-iterate Fisher’s comments

Current Spot Rates (9.00am) 23rd March 2011
	USD	EUR	AUD	CAD	CHF	SEK	ZAR	JPY
GBP	1.6345	1.1521	1.6177	1.6039	1.4695	10.29	11.27	131.953
USD		1.4182	0.9897	0.9813	0.8991	6.30	6.90	80.730

Gerard Associates Ltd advises expats and people considering living abroad on the technical and currency options available for Pensions, QROPS (Qualifying Recognised Overseas Pension Scheme), 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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