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 volatilityand 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.
After basking in glory during Tuesday’s trading session the Pound came crashing back to earth due to a double whammy of bad data from the UK. There was to be no positive follow up to the unexpected increase in the PMI numbers (Services Sector) that boasted its fastest growth in over a year.
The day began with news emerging that although house prices in Britain had risen by 0.1% in March, mortgage lender Halifax stated that its forecast for 2011 was for a 2% fall through to the end of the year. Sterling was enjoying levels close to a fourteen month high against the US Dollar ($1.6403) and had pushed through the eleven month highs against the JPY. At 09.30 GMT the UK saw the release of the figures for Industrial Production for the month of February. The data projected a contradictory view on the strength of the UK’s economy to what was seen twenty four hours earlier. After growth in January was revised to a lesser 0.3%, The Office for National Statistics announced that industrial output fell by 1.2% in the following month. A measure of factory output, which excludes oil/gas extraction and utilities, disappointed forecasts and followed in the footsteps of January’s negative level. The impact of the news was almost immediately felt in the market, especially for GBP/USD which dropped by 30 pips within minutes of the announcement. This fall continued throughout the day, culminating in a half a cent decrease in the session and bottoming out at $1.6265.
The data brought mixed opinions within the market, especially regarding the continuous debate of inflation and its main method of control, interest rates. One side of the coin is that the figures prove any rebound in economic output for the first quarter of 2011 is weaker than initial hopes. In turn this would pour water on any rate hike talk that had been inflamed by the surprise increase within the UK’s service sector.
“The fact that manufacturing output was flat means any rate hike expectations for tomorrow or even May are most likely dead in the water,” said an economist at Daiwa Capital Markets.
On the flip side, the news was received with some scepticism as economists highlighted the volatility of the data. This view was backed up by the statistic that Britain’s Industrial Sector is only responsible for 13% of the country’s GDP and so limiting its influence on policy making.
It was not only against the Greenback that GBP was pushed back from Tuesday’s gains.
EUR/GBPenjoyed a 0.6% rise on the day that added to the already recent surge in the Single Currency. However, positive sentiment for Euro strength was not felt by all as rumours surfaced that the ECB may not be as direct as first thought, with regards to future interest rate decisions.
“The prime focus of the ECB meeting is going to be the press conference and whether or not
Trichet signals that the market is correct to price in two more rate hikes this year,” said a currency strategist at Rabobank.
IN THE UK
• UK Industrial Production figures show a fall (-1.2%) in February, casts further doubts over near-term rise in interest rates.
• Halifax report house prices in Britain rose by 0.1 % in March, but Halifax believe prices could fall by 2% by end of year.
• GBP/USD falls by 1 cent off the back of poor data. (Session low of $1.6265)
• The pound falls 0.6% against the euro as weak UK data bounces off more positive GDP data in Europe.
• Headline news – Portugal caretaker Prime Minister asks for bailout, markets had priced this in and it has made little difference.
• Australian unemployment falls to 4.9% and AUDUSD hits new all time high of 1.0482
• Euro trades slightly lower against USD after Portugal announcement, dropping from high of $1.4337 yesterday
• Focus remains firmly on ECB rate decision today, will comments afterwards point to more rises in near term future. Some are feeling the “strong vigilance” stance may be dropped in favour of more flexible policy.
• Portugal bailout is unlikely to affect today’s decision as it was only a matter of time and would have been considered.
• Japan leave interest rates at 0.1%, reports suggest Japan is on the brink of financial collapse. #
• News this morning all over the media name Spain as the next domino to fall.
DATA TO LOOK OUT FOR
• 12.00 BoE Rate Decision, rates expected to remain on hold but minutes on 20th will reveal voting patterns
• 12.45 ECB Rate Decision, depending on the rhetoric, the Euro may push on to stronger levels.
• US Initial Jobless Claims expected to fall slightly.
• Jean Claude Trichet’s speech at 12.30 will reveal outlook and ECB’s stance on future policy
Gerard Associates Ltdadvises 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 QROPS 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.