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 slumped to a 5 week low €1.1577 against the euro on Monday, as the battle as to who will increase interest rates first continued to sway investors towards euro buying.
Yesterday was a fairly quiet day for key data release, however ECB President Jean Claude Trichet reiterated that they must do whatever necessary to avoid further inflation effects which supported the single currency. This comes after Trichet’s shock comments on Friday in regards to the euro zone increasing their interest rates as early as next month.
Sterling has been performing strongly so far this year, however setbacks such as Q4 GDP figures amongst weak services sector data have caused investors to ease on their positive
Sterling outlook for the time being, and with the BoE falling 2nd to the ECB in the Rate Hike story, sterling is suffering.
The overnight interest rate swap market is pricing in a 25 basis point UK rate rise from a record low 0.5% in June or July, having shifted from May or June. One additional hike is fully priced in by the end of the year.
However up until yesterday afternoon the pound’s performance is still fairly positive against the dollar, nearly breaking through the 13 month high $1.6341 hit last week. Traders said its inability to extend gains beyond a 13-month high had lured some sterling sellers, including Middle Eastern names, into the market. After sterling’s failure to break resistance, it spiralled down as low as $1.6180, a 1 week low.
Interest Rate Expectations against Risk Appetite
The dollar usually opted into during times associated with risk, seems to have been dumped of recent as the interest rates in the US don’t seem like they will be hiked anytime soon, and recent economic data has been fairly weak. Interest rates now seem to have been the main factor influencing investor’s decisions, and risk associated trading has taken a back seat for now.
While rising tension in the Middle East and North Africa have sent crude prices skyrocketing, as well as hurt developed market equities, the US dollar has failed to benefit from this rise in risk aversion. This has many questioning the greenback’s status as a safe haven.
When Israel announced that Iranian ships would travel the Suez Canal, the EUR/USD rallied and similarly, when Egyptians were demanding the resignation of Hosni Mubarak, the EUR/USD strengthened, and then sold off after he stepped down.
The Swiss franc and Japanese yen have also acted as important safe haven currencies recently.
Summary:
IN THE UK
- Sterling weakens against the majors, in particular from $1.6341 to a 1 week low $1.6180 against the US dollar and €1.1577, a 5 week low against the euro
- MPC member Andrew Sentence stands down in May, being replaced by fellow hawk, Ben Broadbent, investors wait to see his stance.
- UK rate hikes now look likely to be for June or July rather than May which was previously predicted.
No comments:
Post a Comment