Euro Falls From Overnight High- Mixed Outlook To Future

By Author: Russel Mori
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).

Yesterday morning was choppy for sterling, with early gains being wiped out by a fall after the release of downbeat unemployment data and the Bank of England's quarterly inflation report.

UK unemployment was up 44,000 in the final quarter of 2010. In addition, the number of those claiming Jobseeker's Allowance rose by 2,400 to 1.46 million. The news dampened sentiment towards sterling, which had risen against the dollar in anticipation of a positive outlook for interest rates in the quarterly inflation report. However, ...
... once the report actually emerged, it became clear that market expectations had been overdone, with Mr King denying that he was now keen on the idea of interest rate rises, this saw Sterling drop across the board, the correct positive market sentiment.

The Bank of England forecasts lower growth for the UK in 2011 and said that inflation would fall back to the 2% target in two years' time, although it would remain high over the coming twelve months. King was careful to say that yesterday's letter to the Chancellor did not signal a coming rate hike, warning that no decision on rates had been taken and that ‘some people were getting ahead of themselves'. This is typical of the Bank of England as a weaker pound is favourably for exports.

The afternoon saw sterling claw back some loses as In the US, industrial production unexpectedly fell 0.1%. Sterling holds strong above what is appearing to be a strong psychological support level at $1.60.
The euro fell back from an overnight high of $1.3549 as the slew of economic developments spurred a mixed outlook for future growth, and the single-currency is likely to face additional pressure as the region copes with an uneven recovery. Economic activity in the euro-zone increased 0.3% in the fourth quarter amid forecasts for a 0.4% expansion, while the growth rate for Germany, Europe's largest economy, advanced 0.4% during the same period, which missed forecasts for a 0.5% expansion in the growth rate.

Portugal raised €1bn from the sale of 12-month treasury bills but admits it faces a second recession in three years following tax increases and harsh spending cuts. The bond sale was heavily oversubscribed as investors picked up a rate of 3.987% compared with 3.71% just a few weeks ago.

Economists still rank the country as among those most likely to need an EU bailout sometime this year and comments from central bank governor Carlos Costa today will have done nothing to change their opinion. These sentiments will of course put growing pressure on the euro over the coming weeks.
Sterling had a high of the day at €1.1957 but due to mixed results from the Bank of England the euro ended up stronger at the end of the day's trading at €1.1850.

Today we have some significant reports coming out with the main focus being on US CPI figures, expected to come out stronger at 1.6% compared to a previous level of 1.5%, this may be a signal to show growing expenditure in the US and a sign of an improving economy.
The euro zone has construction output figures coming out expected at -0.9%, again possibly placing pressure on the Euro.

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