The Pound Falls A Session Low Sterling Improves Slightly

By Author: russelmori
Total Articles: 25
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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).

IN THE UK

• The pound suffers further against the euro, falling to a session low of €1.1175.
• Halifax House Price Index does indicate a small increase in the value of UK house prices, exceeding those posted last month, but coming in well below the forecasted level of 0.4%.
• Sterling improves slightly against AUD as RBA keeps interest rate on hold at 4.75%
• UK outlook points to a bleaker outlook for the consumer
• Credit rating agency Moodys say weak UK growth and fiscal issues ...
... could see the UK’s triple A rating under threat and the pound falls this morning against a basket of currencies.

ELSEWHERE

• Eurozone (Year on year) retail sales figures come through at -0.3% despite exceeding the month on month forecast by 0.5%
• Trichet wades into the Greek debt debacle, suggesting that a Vienna style arrangement, where other EU countries buy up certain assets, may ensure that creditors don’t lose out.
• Moving back to Portugal where the news has remained quiet, the IMF believe the financial aid program has important risks.
• German Factory Orders show significant improvement against April’s figures. Up 2.8% after April saw a drop of -2.8%, and the highest level since March of last year, EURUSD rallies to $1.4669
• A leaked letter from German Finance Minister to ECB shows Germany see default risks in Eurozone as a real possibility
• In his speech last night Fed’s Ben Bernanke said that US growth is slower than expected, recovery uneven and monetary policy should remain loose. He maintains brighter days are on the horizon and there was no mention on QE3 as some were expecting. The question still remains, what happens at the end of QE2, are employment, growth and housing suddenly going to recovery?

DATA TO LOOK OUT FOR

• Eurozone revised GDP figures are released at 10.00am, no change to the previously reported 0.8% figure is expected
• 11.00am sees German Industrial Production figures, the markets are expecting to see a slight drop from last month
• Canadian House Starts is released at 1.15pm and could help CAD as the figure is expected to rise to 185k
• The Fed’s Beige Book is published at 7.00pm and reports on the current US economic situation. The information released often has a heavy impact on the US dollar so expect volatility if there are any surprises.
• OPEC expected to raise oil production targets at its meeting in Vienna
• RBNZ Interest Rate Decision meeting at 10.00, rates are expected to hold at 2.5%
• Japan released revised GDP figures for Q1 overnight, previous estimates showed a contraction of 0.8% in Q1

Current Spot Rates (9.30am)

8th June 2011

USD EUR AUD CAD CHF DKK NOK SEK ZAR JPY
GBP1.6386 1.1167 1.5389 1.6032 1.3691 8.3266 8.7800 10.08 11.03 130.830
USD 1.4670 0.9392 0.9784 0.8355 5.0815 5.3582 6.15 6.7379.843
EUR 0.6817 1.3781 1.4357 1.2260 7.4564 7.8625 9.03 9.88 117.158

The pound continues to bear the brunt of a more confident euro. Consensus over the Greek debt issue, referred to as a ‘supreme default cover up’ by some analysts, has served to pacify those concerned over stability within European markets and the country’s ability to repay its
debt; whilst not out of the woods yet it would seem that the market is prepared to reward the steps taken by the IMF and the ECB, and that this conclusion effectively negates the potential risk of default. Sterling dropped to below €1.12 for the first time in over six weeks.

In the US, the Fed has backed a surcharge being imposed on those banking institutions deemed ‘too big to fail’, suggesting that a 3% higher capital reserve requirement is reasonable in order to avoid a repeat of the financial crisis; this is in addition to the 7%
requirement which follows talks in Basal Switzerland. Pulitzer Prize finalist Craig Torres of Bloomberg News agreed that this measure was a “plus” for the stability of the system. In theory this step will stabilise the decline in global banking stocks witnesses on 6th June.

The Euro made gains throughout the session against both major and minor currencies. The holding of the RBA interest rate has seen the AUD lose nearly 1% against the single currency, moving from a rate of 1.31 only ten days ago to in excess of 1.38. With RBA rates
remaining at 4.75% one might suspect that a calming of the markets will serve to see a retrenchment by the euro in the coming days.

In the US, market analysts have given a nod to the resumption of consumer credit growth, which demonstrates a dilution in banks’ lending policies, and may indicate that consumers are now ready and more inclined to borrow again. Today sees release of the Federal
Reserve’s Beige Book which may very well provide insight into how far the Japanese Tsunami is responsible for the recent slowdown. The ‘Book’ is compiled by 12 Federal Reserve districts and last month’s showed a moderate increase in consumer spending, car sales and manufacturing.

It has been suggested that any upside movement in both UK and US stocks is unlikely to be as a result of optimistic data. In fact Patrick McGee commentated for MBS said that “The (upcoming) calendar of events is simply too light to drive a sustainable directional reversal”.
UK House prices posted the biggest yearly fall in 19 months according to mortgage lender Halifax. IHS Global Insight warns that this sector should prepare itself for “further weakness” and “ongoing muted housing activity” and is a result of difficult economic fundamentals. House prices fell 4.2% in the three months lead up to May compared with this time last year, which represents the biggest fall since October 2009.

Gerard Associates Ltd advises expats and people considering living abroad on the technical and currencyoptions 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.
This with the reassurance and security of UK FSA authorised and regulated advice - essential for your security.

Russel Mori writes for Gerard Associates LTD, for more information on
QROPS, QROPS Pensions, QROPS List, QROPS Providers, QROPS Guernsey info available online.