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 Qualifying Recognised Overseas Pension Schemes (QROPS) 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 dropped against the US dollar yesterday but made gains against a broadly weaker euro.
Early on in the session, UK mortgage lender Halifax released a report that showed UK house prices fell 1.6% year-on-year in the three months to December, the biggest fall since November 2009. With the housing market still an important part of the UK economy and underperforming again, the pound fell against the dollar immediately after the announcement to a low of $1.5479.
Against the euro, the pound fell off a 4 month high of €1.2062 set during Asian trading early in the morning to fall back below the €1.20 mark. However as sovereign debt problems in the euro zone intensified, the pound managed to finish the London session at €1.2045.
Over the weekend, reports have said that both France and Germany want Portugal to accept financial help from the EU and IMF to help stop their debt problems rubbing off other euro zone periphery nations.
The euro is likely to remain under selling pressure as long as concerns are there that debt problems will extend beyond Portugal. Spain is now another country that investors believe may have to seek aid, while their borrowing costs escalate.
In the UK inflationary pressures have led many experts to suggest that the UK may have no choice but to raise interest rates before wanting to do so. Prime Minister David Cameron spoke on Sunday about his concerns about the higher than ideal prices. Inflation is now almost double the Bank of England’s target rate of 2.0% and still rising.
Historically the best way to lower inflation is to raise interest rates. The UK is in a difficult position, although rates are at an all-time low of 0.5% the economy is still fragile and an increase in interest rates could halt the recovery and send us back in to recession as business and private individual struggle with higher repayments.
The pound would though benefit from a rise in interest rates and pound investors would see better yields on their investments with potentially more to come. Some traders have mentioned that sterling will gain support amidst the speculation.
In reality though, the Bank of England release their decision on interest rates on Thursday and expectations are very much for rates to remain on hold at 0.5% and possibly stay that way until the 4th quarter of the year.
Technical analysts have said with the pound rising past the €1.2050 mark and both the euro zone and UK finding themselves in the positions they are, the pound could test the highs hit last year in June of just under €1.24. Significant resistance would be found here as this represents the highest level the pound has hit since the spectacular decline in 2008.
Sterling's gain versus the euro helped to push the UK currency's trade-weighted index to 81.40, its highest since mid-December.
Some traders said that while sterling was likely to continue climbing against the euro, it could lose out to a broadly stronger dollar.
The Euro dropped to a low of $1.2877 against the dollar and has seen a similar decline to that against the pound, having been over $1.34 last week.
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 and QNUPS and investments in a clear format allowing all customers to make an informed choice.
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