Sterling Falls, Q4 2011 GDP Results Show Retracted Economy
Sterling Falls, Q4 2011 GDP Results Show Retracted Economy
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 fell to a 5 month low 1.1265 against the euro yesterday as any chance of an
interest rate hike in May was pushed aside. The pound did hold steady at around $1.6385
against the dollar trading just short of the 15 month high $1.6430 reached last week after a
surge in UK Producer Prices.
After yesterday was a quiet day for UK data the next focal point will be today's consumer
price inflation data, which is expected to remain at 4.4%, still double the Bank of England 2.0% target. A
further rise could pressure the Bank of england into a rate rise earlier than August.
Recent Euro Strength in Q3 of 2010 the UK showed positive GDP figures and whilst inflation figures were way
above the Bank of England target it looked likely that interest rates could be increased in mid 2011.
However a shocking set of GDP results for Q4 2011 showed the economy had retracted. This
caused investors to question whether a rate hike in the UK would happen, as although the
hike may counter inflation, it may also have negative effects on the economic growth of
the UK.
The Bank of England stated towards the end of 2010 that rates may be hiked as early as May 2011, but a
string of poor data since then has pushed this timescale out, leaving sterling on the back
foot. It is now priced in that the Bank of England will hike rates in August of this year, but today's
consumer price data could impact this view.
The euro zone on the other hand has seen strong manufacturing data, a drop in
unemployment levels and a general more positive outlook for their economy. The ECB
believed that their economy can cope with a rise in interest rates, which led to them hiking
them by 0.25% to 1.25% last week, whilst the UK interest rate still stands at 0.5%.
We have been asked the same question many times recently, which is Why does the Euro
continue to strengthen, even when a euro zone member requires a monetary bail out'.
Now generally if a country requires a bailout then it will have a negative effect on that
particular currency. However, the euro zone is a collection of countries making one single
currency, so the strength of some may outweigh the weakness of others. What must also be
taken into consideration is that the ETSF (The European Financial Stability Facility) which is a
fund used to bail out indebted euro zone members, has given investors' confidence in the
euro zone's road to recovery, as it now a permanent facility.
The UK also promises to contribute to euro zone members, requiring a bailout even though
we are not part of the single currency. This has been heavily criticised which is
understandable considering the problems we face at the moment.
IN THE UK
BRC release figures that show UK retail sales have fallen to the lowest levels since records began in 1995, down 3.5% in last year
RICS house price survey shows proportion of surveyors who think house prices are fallen is now -23, better than Feb's -26
IMF downgrade UK GDP forecast to 1.7%
Sterling continues to fall against the euro falling to a 5 1/2 month low 1.1265
This morning UK Consumer Price and Retail Price Indexes show a slight fall in inflation, whilst this is probably good for the economy, it pushes back the chances of a May interest rate rise to perhaps August, it will be interesting to see the pound's performance off the back of this information
ELSEWHERE
Euro reaches 13 month high over $1.44 against USD.
Another earthquake in Japan scares the markets as Fukushima nuclear plant severity rating moves up to highest level 7, or par with Chernobyl. Investors sell off risky assets in favour of safe havens as risk appetite takes a big hit
Fed members Yellen and Dudley cast fairly downbeat comments about US economy, suggesting no chance to monetary policy soon
Commodity prices fall slightly and combined with waning risk appetite USDNOK and USDCAD both move up higher.
IMF and EU meet today to discuss exact terms of Portugal's bailout.
DATA TO LOOK OUT FOR
UK Good Trade Balance, recent figures have improved as exports increase but this month's figure is expected to show the deficit has widens
German and European ZEW Surveys, the figures are both expected to drop slightly but shouldn't affect euro strength too much.
At 1.30pm US release their own Trade Balance figures, consensus is for the deficit to narrow slightly to -$43.10bn
US Import Price Index also released at 1.30pm
Bank of Canada Interest Rate Decision at 2.00pm, rates expected to hold at 1.0%
Fed members Dudley and Fisher speak today, the speeches are likely to be dovish like yesterday's from Yellen and Dudley
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.
Creating a shipping empire with Managed File Transfer Global Warming - Its Control & Impact Growing and Imploding Global Equity Markets Globalization's Impact on Accounting Education Globalization and Taxation: Contemporary Taxation Transportation Sector to Drive Global RFID Market Making your Supply Chain Business Befitting for Global Ranking This contribution of Property developer in the exclusive global financial area programs Alabama Universities Include both Local and Global Institutions BigMachines Showcases Global Cloud-based Sales Solutions at Cloudforce London and SaaS World Tokyo BigMachines Continues Global Expansion with New Office in Singapore Global Search Engine Optimization Shipping to Canada the Secure and Swift Way