Support for Pound Against Dollar, Euro Under Intense Pressure

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).

On Friday morning the market supported Sterling against the U.S. Dollar as the Pound enjoyed positive sentiment from the strong UK retail sales data that were released on Thursday. A sustained movement was prevented by key technical resistance and the ever creeping shadow of high inflation coupled with general concerns over the UK economy. During the early trading session, the Euro held the Pound at bay, helped largely by the positive figures that came out of Germany in the form of the producer price index.

The end of the week saw GBP mostly unchanged against USD despite being jostled too and fro by both positive and negative data throughout the week. The main talking point of the market continues to be the ‘will they, won’t they,’ debate over interest rates. Opinions are divided, as some expect a rise at the end of the year being inevitable so as to put a cap on the inflation problem. Others believe that a rate rise would not be a positive move and may derail the economy’s fragile recovery. The overriding view that does not divide the market is that the signals coming out of the UK economy are restricting any consistent interest in the Pound.

“Sterling’s been trading fairly disappointingly. You would have thought EUR/GBP would trade lower this week because this week’s data has increased the chance of a UK rate hike, but the rate market has ignored it, and so has FX,” said a currency strategist at Nomura. “If the Bank of England raises rates due to high inflation but growth stays low, that would be bad for the economy and sterling would sell off further.”

As the days’ trading came to a close, GBP/USD lost some of its earlier gains as it shadowed a fall in the Euro. Investors became nervous about the demand for Euro zone assets, as Fitch downgraded Greece’s sovereign rating. A warning was issued that any extension of its bond maturities would be considered a default. The news, coupled with a slide in oil and commodity prices, prompted selling in risky assets while raising demand for the dollar, which in turn reigned in the Pound. In late London trade, GBP/USD fell 0.3% on the day to a session low of $1.6167, quite a tumble down from a session high of $1.6275 that was hit earlier in the day.

IN THE UK

• Thursday’s strong retail sales provided support for the pound against the US dollar on Friday morning as it remained around the $1.6275 level throughout morning trading. however risk aversion later on from Europe’s worries resulted in the dollar being heavily bought and GBP/USD fell around a cent before recovering to around $1.6230
• Interest rates are not expected to rise until the end of the year, however even if inflation continues to rise, growth must rise too.
• Main talk in the UK is the 'will they, won't they' discussion into a possible Interest Rate rise, and whether the economy can cope with a rate rise
• The pound enjoys a day of gains on Friday against the euro which has continued through to this morning with GBP EUR comfortably over €1.15
  

ELSEWHERE

• The euro remains under intense pressure from negative debt news from peripheral nations and Spain’s political situation.
• Spain’s Government took a hammering in the polls, which will make it difficult to implement more debt reducing austerity measures.
• Meanwhile Greece’s chance of debt default took a turn for the worse as Norway suspended a €30,000,000 grant because Greece have failed to meet its EU-IMF bailout conditions.
• Risky assets are sold off as credit ratings agency Fitch downgrade Greece's Sovereign rating to B+. Fitch warns that any extension of maturities would be considered a default.
• Investors fear that debt issues are worsening in the Eurozone and ratings agency S&P may lower Italy's credit rating.
• German Producer Price Index rises above expectations of 0.6%. The figure showed PPI rose to 1.0% from 0.4% the previous month, but given the other news this did little to help the euro.
• Analysts feel that the German economy could start to lose momentum in growth.
• Risk aversion saw the euro lose ground across the board with EUR USD in particular falling from around $1.4340 to as low of $1.4150 and hovering around the €1.40 mark this morning.

DATA TO LOOK OUT FOR

• After this morning’s individual and collective European PMI’s there are no more significant data releases today. Focus turns to a busy day of data tomorrow including German GDP figures, UK Public Sector Borrowing and housing data from the US.

Current Spot Rates (9.30am) 23rd May 2011
	USD	EUR	AUD	CAD	CHF	DKK	NOK	SEK	ZAR	JPY
GBP	1.6149	1.1521	1.5294	1.5802	1.4238	8.5929	9.0306	10.28	11.28	132.460
USD		1.4022	0.9471	0.9785	0.8817	5.3210	5.5920	6.37	6.98	82.024
EUR	0.7132		1.3275	1.3716	1.2358	7.4585	7.8384	8.92	9.79	114.973

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 transfers 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.