Pound Surges On The Back Of Excellent Growth Figures

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 Qualifying Recognised Overseas Pension Scheme (QROPS) 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).

Wednesday saw the pound surge ahead of both the dollar and euro after official data
showed the UK economy expanded 0.5% in the first three months of 2011. Against the dollar
the pound increased as much as 0.6% to hit a session high on 1.6577. The euro also dropped
0.6% against sterling causing GBP/EUR to hit a session high of 1.1301 before recovering and
spending most of the day around the 1.1280 level.

Before the data sterling had been weaker against both the euro and dollar, being held ...
... down
by talk in the market of a weaker than expected number. In actual fact the data was figure
was broadly in line with consensus forecasts surprising some in the market and therefore
boosting sterling.
“There were rumours of a 0.3% increase, which meant that the 0.5% reading was actually
better than the market had expected,” said Rabobank in London who forecasts
further gains for sterling.
Interestingly some strategists don’t think the GDP data was strong enough to bring forward
the Bank of England to raise interest rates. “As the bank of England had been forecasting a
0.8% rise in growth for the first quarter, the growth numbers today should act as the final
nail in the coffin for a May interest rate” said an European economist at
Schroder Investment Management. The smart money is on the Bank of England to start
raising rates in November, which is going to help cap any sterling rally in the coming months.
Across the pond we saw new orders for durable goods rise 2.5% to $208.4bn last month,
slightly ahead of expectations; this was the third straight month of rising orders. However all
eyes were focused firmly on what the Bernanke press conference would reveal later on in
the evening as most are expecting the Federal Reserve to lag behind other central banks in
increasing their interest rates. This caused the dollar to slid to a 16 month low against the
euro as they are in stark contrast the ECB who raised rates for the first time since July 2008
and appears on a path to continued tightening.

IN THE UK
• Sterling rises as UK Q1 GDP posts at +0.5%, UK avoids re-entering recession after last quarter’s disappointing 0.5% contraction.
• GBP/EUR hits a high of €1.1301 and cable reaches a high of $1.6580.
• A slight fly in the ointment comes as UK GfK consumer confidence drops to -31, the lowest since Feb 2009
• Some strategist feel GDP figure merely coming in line with expectation is not enough to counter balance recent poor data releases, rumours are circulating that November is the earliest we will see a rate hike. If this speculation continues the pound will remain under bought and could stay low for a sustained period.

ELSEWHERE

• The US dollar gets battered from all sides as Fed President Bernanke pledges to keep interest rates near zero to stimulate growth.
• The pound, euro, Kiwi and Aussie all reach multi month highs as US appears likely be the last major economy to raise rates.
• EURUSD reaches $1.4881, the highest seen since late 2009
• Despite worried outlook, US durable goods rise for a third month climbing 2.5% after a 0.7% gain in the previous month
• Eurozone members reaffirm further rate hikes may be warranted if inflation outlook deteriorates further, keeping the euro strong.
• As US looks like policy will be kept ultra-loose possibly until Q3 2012, investors look to higher yielding currencies, in the short term this is likely to help EUR and AUD most, AUD currently set to test $1.10 level
• Overnight Japan leaves interest rates on hold at 0.1%, no surprise given recent disaster and outlook.

DATA TO LOOK OUT FOR
• US GDP is expected to drop significantly in Q1, the results released at 1.30pm could show a fall from 3.1% to 1.8%
• Also 1.30pm, US Initial and Continuing Jobless Claims both can affect USD despite being less important than Non-Farm Payrolls data.
• Fed member Dudley speaks at 1.30 and could continue dovish with undertones, shouldn’t have such a dramatic effect on dollar.
• US Pending Home Sales concludes a busy day of US data and is also set to fall highlighting cracks in the housing market.

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.