Sterling Near Two-month High- Euro Hits the Bottom-Gerard Associates

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 income drawdown, flexible pensions or QROPS (Qualifying Recognised Overseas Pension Scheme) should be considered to maximise the Pension drawdown, 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, income drawdown now including flexible pensions, a QROPS and QNUPS (Qualifying non UK Pension schemes).

Sterling hovered near a two-month high against the euro on Tuesday on renewed worries about Eurozone peripheral debt and risks of contagion, although it failed to gain much traction despite better-than-expected UK construction activity data. The euro fell as low as 86.99 pence (€1.1495), a level last struck on May 31, this was mainly headed up by Italian bond yields hit their highest level in the euro’s 11-year lifetime, ominously reaching the same level as Spain's in a sign that Rome is overtaking Madrid as the main focus of investors' concern about debt sustainability. Italy's stock index fell to its lowest in more than 27 months, dragged down by banks with a heavy exposure to Italian debt. European shares hit a 9-month low amid worries that slowing economic growth will make it even harder to overcome the Euro zone's debt

troubles.

Sterling traded to a low of $1.6223 versus the dollar, mainly due to further news being released from across the pond regarding their debt ceiling meetings. Some traders have said sterling could find support from the news Hong Kong's CKI has agreed to buy Northumbrian Water Group in what could be the biggest takeover this year of a British-listed company. UK construction PMI data for July beat expectations with a reading of 53.5 of which showed that the sector is in expansion, compared to a forecast of 53.0, but the positive impact on sterling was limited as construction makes up less than 10% of the economy. The outlook for the UK is still lacklustre after data on Monday showed the manufacturing PMI shrank for the first time in two years, pushing sterling down from a two-month high of $1.6477.

"The data has held up better than people expected but the fixation is on manufacturing data and the services data tomorrow. The market seems to be focusing on UK growth being softer," said a FX strategist at Credit Agricole. "Against the Euro, sterling is going a bit better but it's approaching its 200-day moving average at 86.63 and last time we bounced just above that." Across the pond there was no major impact data being released, other than consistent feedback regarding meetings concerning the US debt ceiling. However the medium and low impact data that was released all missed expectations. It would seem that the market will be looking towards the next few days where we have a host of high impact data being released from the US, Eurozone and the UK.

IN THE UK

• Sterling posted a near 2 month high against the euro at the rate of €1.1495.
• Sterling retreated further against the US Dollar, posting a low of $1.6223.
• Sterling’s Construction PMI data beats expectations posting a figure of 53.5 against a figure of 53 showing the sector is in expansion.
• Outlook for Sterling is still poor based on Monday’s Manufacturing data that was released, and massively missing expectations posting 2 yearly lows.
• The pound receives a welcome lift as PMI Services, the most important of the PMI’s, is released this morning well above expectations at 55.4.

ELSEWHERE

• Euro Price Producers Index month on month narrowly misses expectations posting a figure of 0% against a forecast figure of 0.1%.
• US Core PCE Price Index month on month misses expectations posting a figure of 0.1% against a forecast figure of 0.2%.
• US Personal spending month on month massively misses expectations posting a figure of -0.2% against a forecasted posted figure of 0.2%.
• Swiss Retail Sales year on year posts a vastly better than expected figure of 7.4% against forecasted figures of 1.6%.
• The US have been put on negative outlook by Moody’s although maintain their AAA rating, however S&P say there is a 50% chance they will lose top tier rating.
• Prospects for the Eurozone and the US look equally bad as poor reports regarding Spain and Italy filter around the markets, the US despite having the debt limit raised is not out of the woods, poor GDP and ISM Manufacturing figures compound this and prompt investors to remain on a risk off strategy.

DATA TO LOOK OUT FOR

• BRC Shop Price Index year on year expected to beat previous years reading of 2.9%.
• Australian Retail Sales month on month forecast to post a figure of 0.4%.
• Euro Services PMI expected at 51.4.
• US ADP Non-Farm Employment Change expected to post a figure of 101k ahead of the Non-Farm Payroll figures on Friday this week.
• New Zealand Unemployment Rate expected to be released tomorrow at a forecasted figure of 6.5%.

Gerard Associates Ltd advises UK residents, expats and people considering living abroad on the technical and currency options available for Pensions, pension income drawdown, flexible 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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