Sterling up against US dollar and Euro

We continue our daily look at factors affecting currencies allowing some insight into market conditions affecting exchange rates. Cash and income timing for UK Pensions and QROPS should be considered to maximise the Pension, QROPS and investment income and benefits taken.

Investment market volatility and currency exchange remains a challenge. Things are still very volatile and we are in unique global influencing territory. In conjunction with investment returns, currency exchange continues to concern many expats with UK Pensions, QROPS and now QNUPS.

Sterling started the week on the front foot making gains against the US dollar and the euro off the back of rumours that higher inflations data (released today) could trigger the Bank of England to raise interest rates in the first half of this year.

Sterling was further buoyed against the euro after the single currency’s recent rally ran out of steam as investors remained unconvinced that enough progress was being made to improve the euro zone debt problems.

At 5.00pm yesterday sterling was up 0.2% on the day against the US dollar at $1.5909 having risen to a high of $1.5955 its highest since the end of November.

Against the euro sterling was also doing very well, up nearly 1% on the day trading at €1.1964 having risen as high as €1.1976 earlier in the day.

Markets are awaiting the UK CPI data released at 9.30am today; this reading is expected to give more evidence of high inflation.

Markets are expecting a 3.3% reading year on year for December. A figure like this would put pressure on the Bank of England to discuss raising rates in a move that would be designed to curb this increase in inflation despite some calling for a the Bank of England to keep rates on hold.

Ernst & Young ITEM Club predicts that the consumer price index, the government's preferred measure of inflation, will peak at nearly 4% in February causing the Bank of England to increase interest rates from the current level of 0.5%.

"A premature rate rise would boost the pound, weakening the UK's ability to increase its exports, which we have long maintained hold the key to the UK's economic recovery," said ITEM's chief economic advisor.

The rumours of higher inflation have already driven sterling up over the past few trading days, however there may still be some sterling strength to come.

The euro zone is a very similar situation with Jean Claude Trichet’s comments about keeping a close eye on inflationary pressures on Thursday sparking market talk about a possible rate hike in the euro zone, and took the euro sharply higher against the dollar.

With the rate hike in the UK seen by markets as likely to happen sooner than in the

Euro-zone expects the volatility to continue in the short term.

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 Pensions, investments, currency exchange and guidance on taxation in most popular ‘sunnier’ climates. This with the re-assurance and security of UK authorised and regulated advice – essential tools for your security.

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