Sterling Rises a Week high, Greece’s rating at CCC

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 pushed to over a week high against the euro yesterday pushing to around €1.1360

as concerns over the euro zone debt crisis coupled with expectations of rising inflation

figures in the UK strengthened the pound. Eurozone policymakers are yet to come to an

agreement as to whether private investors would be a part of the Greek debt re-structuring.

Greece has now been branded with the world’s lowest credit rating by ratings agency

Standard & Poor’s, who have stated that they feel that Greece is becoming ‘increasingly

likely’ to face debt re-structuring leading to the first sovereign default in the euro zone’s

history. Greece’s rating now stands at CCC.

Yesterday was a quiet day for data release, volatility was kept to a minimum in some of the

major pairings. Against the dollar, sterling also rose and looked supported near-term,

reaching a day high $1.6389, staying above its 100-day moving average at $1.6246 and well

above a low of $1.6215 hit on Friday in response to figures showing a sharp contraction in

UK industrial output.

Investors eyes will be fixed on inflation figures and the Bank of England reaction surrounding them. CPI is predicted to come in unchanged at 4.5% for May but even if inflation figures rise it may see

Sterling make initial gains, however these gains may not be sustained if the Bank of England don’t

respond by raising rates in the nearer term.

"Even if we get strong inflation data, say 4.7%, it's very unlikely the majority of the

Bank of England Monetary Policy Committee are going to start voting for a rate hike," said a senior currency strategist at Rabobank.

A recent run of weak UK data has forced the Bank of England to push a rise in interest rates back, and

markets are not pricing in a rise until at least April 2012, as they fear that a rise in rates

would be detrimental to the Economic growth in the UK.

Other data release today includes Producer Price Index in the US, which is expected to show

a slight reduction from 0.8% in April to 0.1% in May, and retail sales in the US are expected

to drop from 0.5% in April to -0.3% in May. Wednesday will see a U.K gilt auction, with

£2.25billion worth of debt being auctioned off.

IN THE UK

• Sterling pushed to 1 week high against the euro €1.1360 yesterday
• Although a quiet day for data release the pound held against the dollar moving to a day high $1.6389
• Strong inflation data may see sterling gain initially, but the interest rate reaction will be the key to sustaining any gains.
• A recent run of poor UK data has made a rate hike unlikely until April 2012, due to the fear that a rate hike could be detrimental to economic growth

ELSEWHERE

• Euro Zone debt crisis sees Euro weaken across the board.
• Policymakers in the Eurozone are yet to come to an agreement as to whether private investors will be a part of debt re-structuring
• Ratings agency Standard & Poor's downgrade Greece, and have now been branded with the World's lowest rating of CCC, as the likelihood of a debt re-structure looks increasingly
• Yesterday Spanish and Portuguese bond auctions come under pressure, the Portuguese 10 year yield has hit its highest level since the beginning of the euro in 1999
• The US continues to be in considerable debt problems as the government sit at their $14.3 trillion debt limit, the Treasury’s Tim Geithner has urged Congress to raise the limit, but in the meantime ‘extraordinary measures’ have been untaken to reduce the Treasury’s exposure.
• Belgium face a possible downgrade today.

DATA TO LOOK OUT FOR

• A busy day for data today starts with UK inflation figures, Retail Price Indexes and Consumer Price Indexes. Some sources expect the numbers to cool off a little and this would help support the argument to not increase UK interest rates. If this is the case then the pound would probably lose any of its recent gains. If prices remain high then the pound should maintain its current levels or even rise.
• CB leading Indicators released at 10.00 give an overall view of the UK economic conditions.
• At 1.30pm in the US Producer Price Index and Retail Sales are released, like the UK, the figures will give an indication of how the economy is performing and how price pressures are effecting the economy. The US is unlikely to raise rates this year so it would be helpful for policy if inflation remains near target.
• New Car Sales are released in Canada at 1.30pm and are expected to fall slightly.
• Retail Sales figures are released in NZ late this evening and are expected to show a big improvement from the previous quarter.

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