Share Prices Falling; Spain & Portugal To Hold Bond Auctions if Results are Poor

Share Prices Falling; Spain & Portugal To Hold Bond Auctions if Results are Poor

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).

Despite confirming over the weekend that a rescue plan had finally been accepted by the Irish government, the euro underperformed the pound and US dollar throughout yesterday's session as political worries now weighed on Ireland's future and subsequently the euro zone.

The Irish government and EU officials met over the weekend and finally managed to persuade Ireland to accept the ECB's offer of a bailout to prop up its struggling banking sector. In much the same way as Greece did earlier in the year, Ireland will accept a loan of approx. 90bn, leaving the UK with few options but to dig deep into its pocket to the tune of 7bn to help its biggest trading partner to recover.

Initially the news was well received with the euro strengthening to 1.1637 during Asian trading on Monday morning but just as quickly as gains came, political problems caused the euro to weaken and the pound hit a high of 1.1727 in late afternoon trade in London.

The Irish Government, like the UK's is made up of a coalition, this coalition partner and the main opposition party feel the government is entirely to blame for the scenario and have called for a immediate general election. Irish MP's have said they will not support the government's drastic austerity plans into 2011 and on Monday evening received the news they wanted as Irish Prime Minister Brian Cowen announced he would be calling a general election in the second half of January.

The euro fell from a one week high against the US dollar of $1.3778 by 1.4% to finish the London session at $1.3588. A New York trader was quoted earlier in the afternoon saying, "A close in the euro below $1.3648 means it may depreciate to $1.3510 or to the November low of $1.3436 reached November 16th"

Also to add insult to injury, credit ratings agency Moody's have said in a report that Ireland's AA2 rating was already under review and now a multi notch downgrade was the most likely outcome.

Share prices fell as the markets were worried about whether or not the debt problems would spill over into the rest of Europe. Spain and Portugal will hold bond auctions this week and if the results are poor, there could be more bailouts in the near future. The Bank for International Settlements (BIS) estimated UK banks had up to 140bn exposure to Irish borrowers as recently as September so the bailout was welcomed by the UK.

This caused investors to abandon their risky asset positions in favour of safer bets and the US dollar rose against the pound as a result. The pound started the session at $1.6083 but during the day fell by roughly 1.1% to $1.5903.

Traders have said the outlook for the pound is better than the euro at the moment. Whilst the UK has faced harsh austerity measures and a political upsets, they are now in the past. The government appears to be working and the cost cutting plans have been well received by credit agencies and the IMF. Unfortunately Ireland has to face both hurdles at the same time and the road ahead will not be easy.

The euro has dipped below its 200 day moving average of 1.1682 and with work ahead investors may be keen to pick up sterling and UK assets given that surprisingly resilient UK data shows the British economy is continuing to recover even though the UK government implements strict austerity measures.

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 Pension including QROPS and QNUPS and investments in a clear format allowing all customers to make an informed choice.

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