Euro Still Struggles While rise in US Treasury yields helps Dollar stay Strong.

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).

The pound lost some ground against a generally strong dollar yesterday but closed in on seven week high against the euro. The euro came under pressure as last week’s problems with Ireland have spilled over to this week and Greece’s budget deficit was revised upwards.

Sterling slipped versus the greenback after data showed US retail sales climbed the most in seven months, exceeding forecast among economists. This adds weight to earlier data showing bigger than projected gains in payrolls and the ISM manufacturing purchasing managers index that suggest the US recovery picked up at the start of the fourth quarter.

The dollar was also helped by a sharp rise in US Treasury yields and a report that a group of prominent Republican-leaning economists was launching a campaign calling on the Federal Reserve to drop its quantitative easing plan. Sterling ended up 0.4% down on the day at $1.6070 having been as low as $1.6042 in the morning

The pound fared better against the euro gaining 0.4% during the day to hit a high of €1.1827. The euro struggled as Ireland’s banking system came under further scrutiny. A meeting in Brussels later today has been called to discuss Ireland’s reluctance to accept bail out from the EU. Last May a €750bn fund was set up to help struggling euro zone nations avoid the financial difficulties that struck Greece. Senior ECB officials are keen for Ireland to accept the bail out before the debt engulfs the whole euro zone economy

Greece was also in the headlines yesterday as its budget deficit was revised to 15.4% of gross domestic product from 13.6%, the nation’s debt was revised to 126.8% of GDP from 115.1%. Questions about the accuracy of Greek data have undermined the credibility of EU budget rules, which call for euro members to keep their shortfall at less than 3% of GDP.

The total budget gap for the 16-nation euro region widened to 6.3% in 2009, the largest in the shared currency’s history. The revisions also mean Greece won’t achieve the target agreed to pay back €110bn in emergency loans.

The euro fell 0.7% against the dollar during the session and dropped below $1.36 to finish the New York session at $1.3573, the lowest in over 6 weeks.

The outlook for the euro is fairly bleak at the moment, some traders believe it will fall to around $1.30 against the dollar and remain at least above the €1.18 mark against the pound. Key resistance levels are around the mid €1.18’s.