Pound Rises Against Dollar and Euro

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 income drawdown, flexible pensions or QROPS (Qualifying Recognised Overseas Pension Scheme) should be considered to maximise the Pension drawdown, 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, income drawdown now including flexible pensions, a QROPS and QNUPS (Qualifying non UK Pension schemes).

A turbulent week for the pound ended with a rise against the dollar on Friday as traders booked
profits, after selling on Thursday following the Bank of England's announcement that there would be another round of quantitative easing, while better-than-expected U.S. jobs data also gave the pound a boost.
A build-up of short positions following the QE announcement had contributed to sterling bouncing back, but a lack of confidence over the state of the country’s economy kept investors cautious of actively buying the currency. Having previously hit a 14 month low of $1.5270 on Thursday, sterling was up over 1% on the day at $1.5640. Stronger than expected U.S. non-farm payrolls for September meant the pound rose above the $1.56 mark as the dollar came under heavy selling pressure.

There was a surprising lack of movement with the pound after it had been expected to drop
following Moody's rating downgrade of 12 UK banks. The limited reaction was because the
downgrades had not been as severe as some investors expected. “Cable is actually pretty well
supported in the near term. The market had become a little bit over-extended and we are seeing a correction taking place," said a FX strategist at Morgan Stanley.

The fragile state of Britain's economy was highlighted by the BoE's addition of 75 billion pounds to its 200 billion asset purchase programme as global growth slows, government spending cuts and consumers face high inflation and slow wage rises.

The pound also gained on the euro, and was up 0.6% to 1.1570, having previously been down at 1.1448 following the QE announcement. With no change in the rates from the European Central Bank on Thursday, the UK leads other developed countries in the latest round of injecting funds into the market while keeping rates historically low.
Analysts had suggested that they expect the euro to come under pressure, and remain at risk as market perception that policy makers have again failed to ease growing fears of a Greek default and are not taking the appropriate steps to prevent a contagion from the Greek debt crisis spreading to the euro zone banking system.

IN THE UK
(a) After the Bank of England's unexpected QE increase the pound reached a 14 month low of $1.5270 on Thursday, but responded on Friday and was up over 1% to $1.5640

(b) Bank of England policymaker Martin Weale said evidence shows that quantitative easing boosts the economy and there is no reason to believe that it feeds directly into inflation without supporting growth.

(c) Sterling ends the European session on Friday at pre QE levels against the euro hovering around €1.16

(d) Moody's cut the credit rating of 12 British banks due to the likelihood of less state support in a future crisis.

ELSEWHERE
(a) Fitch Ratings Agency downgraded both Spain and Italy. Fitch has downgraded Spain to 'AA-' from 'AA+', and the outlook for the Spanish Kingdom is negative. The agency also hit the Italian Republic which has been downgraded from 'AA-' to 'A+'.

(b) The agency also said the sovereign debt crisis - which has seen financial markets drop severely on worries that some governments, particularly Greece, will be unable to repay all their borrowings - will take time to fix. The report, is blowing hopes Europe will be able to contain the crisis, sending euro to negative territory against major rivals in the short term, and advancing further falls for the days to come.

(c) EUR/USD has risen and is holding in the 1.33 – 1.35 range.
(d) Merkel and Sarkozy meet yesterday and say there will be a comprehensive package in place by the end of the month.

(e) Following Fitch’s downgrade, Moody’s put Belgium under review for possible downgrade.

(f) Dexia bank agrees to sell, joint funding of €90bn coming from France, Luxembourg and Belgium.

DATA TO LOOK OUT FOR (all times UK BST)
(a) Columbus Day in the US today means there are no data releases from the US and markets are unlikely to be influenced by trading volumes.

(b) It’s a quiet day in Europe also, Malta vote on EFSGF and Norwegian CPI inflation figures are released for NOK buyers and sellers.

(c) This evening at 11.00pm RICS Housing Price Balance Data is released; the figure is expected to remain on par with last month’s disappointing -23 as the domestic property market still remains under pressure.

Current Spot Rates (9.00am)
10th October 2011
USD EUR AUD CAD CHF DKK NOK HKD SEK ZAR JPY
GBP 1.5627 1.1538 1.5816 1.6116 1.4294 8.5988 9.0158 12.1700 10.54 12.25 119.822
USD 1.3534 1.3603 1.3861 1.2294 7.3955 7.7542 10.47 9.07 10.54 103.055
EUR 0.9923 1.3708 1.3968 1.2389 7.4526 7.8140 10.55 9.14 10.62 103.850

Gerard Associates Ltd advises UK residents, expats and people considering living abroad on the technical and currency options available for Pensions, pension income drawdown, flexible 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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