FX Comment and Forecast

FRANCE FINANCIALS WEEKLY F/X COMMENT

Last week I was hoping that sterling would start to make some headway against the euro. A week later we are precisely where we started, at 1.1190. After a good start to the week, which saw sterling reach a 3 month high against the euro, it fell back sharply in midweek, scuppered by two major events. Firstly the S&P ratings agency said Britain, due to its huge levels of government debt which we've talked about here before, was the major economy most at risk of losing its triple-A rating. This hurt the pound, as investors and speculative traders often sell Sterling on any suggestion Britain may lose its top-notch rating. The second culprit was our friend Mervyn King, who said the Bank of England was open-minded about pumping more money into the economy and highlighted the benefits of a weak pound.

So, despite good recovery for the pound over the last 4 weeks, this week shows that Sterling is still very fragile and any negative news can quickly affect exchange rates. As unemployment is up, and the governor of the BoE warning that the government have no plan at all to repay the huge levels of government debt, the outlook is still poor. Couple this with the fact that interest rates are likely to remain low for some time, we are unlikely to see any significant recovery for the pound in a hurry. That said, I still feel that the overall trend is up. We’ll just need to overcome a few hurdles on the way.

AND NOW… THE FORECAST

My forecasts will reflect my personal views, and certainly not those of the Spectrum IFA Group. My ongoing view is still that sterling is undervalued below 1.2500 Euros.
Having ended the week all square, I am hopeful that sterling can resume its upward track against the Euro. There are important announcements due this week, which could well affect sterling. The minutes of the November MPC meeting feature in the UK and should provide further background in terms of the central bank's decision to extend its QE activities. On the data front, it is also a pretty key week with consumer prices, retail sales, public sector borrowing, Rightmove house prices and the CBI’s latest industrial trends survey all due for release.

If all goes well, and let’s face it, that is unlikely, I hope to see sterling in the 1.1300s next week.

Focus on Sterling

The hot topic of the moment continues to be sterling, and its woeful new position as doormat currency of the western world. Mervyn King seems to quite like the view from down here. There is a theory that he thinks it makes life easier for UK exporters. I don’t agree with that, and think instead he is happy just to make life more difficult for importers. Whichever it is, he’s not going to go out of his way to help talk up sterling in the foreseeable future.

So where does that leave you and me and our sterling nest-eggs back in the UK, or more likely in Jersey, Guernsey or the IOM? Actually, I’m going to withdraw smugly from this group, as I read my own forecasts and changed all my sterling for euros between 2004 and 2006 at an average of 1.4400 or thereabouts. I know those of you who didn’t don’t like to be reminded of the fact, but you were taking a big financial risk, and just now it doesn’t look too good.

For what it’s worth, my personal view is that sterling is undervalued, and it will recover. Not back to the dizzy heights of 1.5000 but possibly back to between 1.2500 and 1.3000, where I think we will eventually settle for entry into the euro in years to come. Now you all know that I think that anyone over here with any spare cash at all should be holding that cash in a tax efficient manner in France (no, I’m not going to say it). I just want to stress this week that sterling and tax efficient investing in France are not mutually exclusive. You can shelter your sterling from income tax and social charges; and you can retain the ability to choose when to convert to euros. In fact the case for doing this is so strong that I often wonder why I have to make it at all.

Financial regulators in France

A few weeks ago in my column in the Aude and Ariege Flyer I referred to a certain Mr Warren Templeton, a low-life swindler who was operating in the Dordogne region. His case seems to have sparked a great deal of interest in the regulation and monitoring of financial advisers; and so it should too. I am seeing an increasing number of clients who have come to me because they are worried about advice they have taken either before coming to France, or within a short period after their arrival here. I’m sorry to report that in a lot of cases the advice they acted upon was either born out of ignorance or ineptitude, and in some cases worse.

At Spectrum we have a clear policy; we believe that it is in the clients’ interests for us to be registered and regulated in each of the countries where we offer our services to expatriates. This has always been our policy. We have always encouraged our clients to maintain their relationship with their UK financial adviser if they continue to hold UK based investments. If that adviser is competent, he will know when his client should be talking to us.

The publicity surrounding this case has prompted some interesting and conflicting views in the national English-in-France press. One large spread advert seems to imply that the likes of Templeton are clowns; not a view that I think his victims will share. Another article claims quite openly that it is OK for expat advisers in France not to seek regulation here, because they don’t speak French well enough and may misunderstand the rules.

It’s a funny old world.

Tax Changes for Lower Paid

France financial minister announces tax breaks for lower paid workers. Anyone in the 5.5% tax bracket will get an 80% refund of their tax for 2008.

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France Financial specialises in helping English speaking expatriates currently living in France, or intending to do so in the future, to protect and enhance their finances. Our aim is to create and provide solutions by way of a broad range of products and services. We will work with you to plan your finances and make the most of the opportunities offered by the expatriate lifestyle.

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