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GBP Rides Rollercoaster Versus EUR, as Brexit Hopes Rise Then Fall

Welcome to Pure FX’s weekly summary plus outlook of the interbank exchange rates. This tells you what’s affected the exchange rates in the last week, and what may happen next, for your money transfer!

Pound to euro

Sterling hits a speedbump versus the common currency! The pound to euro interbank exchange rate hit its highest in 4 months last week, at 1.1461, then fell back to 1.1340.

The pound initially spread its wings last week, because the EU's chief Brexit negotiator Michel Barnier said that he thinks a deal can be reached this week. Mr. Barnier believes that the UK can find an agreement, both over Northern Ireland's border and a Customs Union. Sterling later fell though, as on Sunday Mr. Barnier tweeted that "despite intense efforts, some key issues are still open."

Meanwhile, the euro broke down by the roadside last week, because Italy's row with the EU over its budget deficit escalated further. In particular, Italy's populist deputy prime minister Matteo Salvini called EU head honchos Jean-Claude Juncker and Pierre Moscovici "enemies of Europe". This cuts the odds that Rome will reach a cease-fire with Brussels over its planned deficit of -2.4%!

Outlook

Moreover, looking forward, sterling could bounce back versus the euro. Why? Well, because the UK economy expanded by a healthy +0.7% in the 3 months to August, said the Office for National Statistics last week. UK GDP growth was especially bolstered by retail sales and new home construction. This creates opportunities to invest in the UK, lifting demand for the pound, and its value!

Pound to US dollar

The pound to US dollar interbank exchange rate rockets then dives! Sterling jumped up to 1.3251 against the greenback last week, then dropped back to 1.3110.

The US dollar flip-flopped last week, chiefly because America's stock markets fell to multi-month lows. Indexes like the Dow Jones, NASDAQ and S&P500 all weakened, as money managers worried that US president Donald Trump's trade war with China may slow America's economy. That said, the greenback later rebounded, as the USA is still a safe haven from global economic volatility!

Outlook

Furthermore, in future, sterling could continue to wobble versus the dollar. This is because, first, president Trump has called the Federal Reserve's recent interest rate hikes "crazy" and "ridiculous". The Fed is an independent institution, and traditionally US presidents don't question the Fed's decisions. On the other hand though, the Fed is still likely to hike again, supporting the buck!

Pound to Swiss franc

Sterling goes in circles versus the Swissie! The pound to Swiss franc interbank exchange rate ended last week where it began, at 1.2975-1.30.

The franc flatlined last week, yet may rebound, looking ahead. This is because the International Monetary Fund (IMF) has lifted its 2018 growth forecast for Switzerland by +0.7%, to 3.0%. This is even though the IMF has cut its global GDP prediction for this year by -0.2%, so Switzerland is bucking the trend. In particular, Swiss exports hit a new all-time record high of Fr55.7 billion in Q2.

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate slips! Sterling fell by -1.75 cent versus the Aussie last week, to 1.8425.

The Australian dollar moved on up last week, first because Australia's business confidence beat forecasts. Company sentiment rose to +15 in September, said NAB, above predictions for +9. In particular, miners felt bright about the future. Furthermore, the AU dollar also strengthened, as Australia's economy will keep expanding solidly through to 2020, said a Reuters poll of economists.

Pound to New Zealand dollar

Sterling trips over its shoelaces versus the kiwi! The pound to New Zealand dollar interbank exchange rate fell by -2.75 cents last week, to 2.0125.

The NZ dollar took poll position last week, because New Zealand's electronic card sales rose by +1.1% in September, said Statistics New Zealand, above forecasts for +0.6%. Also, the New Zealand dollar rose, because the US Federal Reserve may now be less likely to lift interest rates above 2.25%, thus encouraging investors to place money in alternatives such as New Zealand.

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate climbs the ladder! Sterling rose by +0.75 cents versus the loonie last week, to 1.7075.

The Canadian dollar fell into a mine shaft last week, chiefly because the price of oil, Canada's biggest export, declined. US crude futures fell by -2.4%, as US president Trump came close to imposing trade sanctions on Iran, a major oil refiner, while Hurricane Michael cut US Gulf of Mexico crude output by -40%. When the black gold falls in price, Canada's oil exports are less valuable!

Outlook

Furthermore, looking ahead, the CA dollar may remain on the back foot, as Canada's economy has performed below forecasts recently. For example, Canadian construction firms built just +189,000 new homes in the last year, said Statistics Canada, below predictions for +210,000 new houses. Moreover, building permits in Canada rose by just +0.4% in August, beneath hopes!

Pound to Japanese yen

Sterling crashes and burns versus the yen! The pound to Japanese yen interbank exchange rate fell by -1.05% last week, to 146.68.

The yen stood taller last week, as global stock markets dropped heavily. This benefited the yen, as Japan is the world's 2nd-largest industrialised economy after the USA, with a strong reputation for financial responsibility. Hence, when there's economic or political uncertainty, money managers sell other currencies to buy yen, and invest in Japan, as a safe harbour from the stormy seas!

Outlook

In addition, the yen may continue to pump it up, looking forward. This is because, first, Japan's machinery orders rose by +6.8% in August, easily thrashing forecasts for a -4.0% fall. This tells us that, even though US president Trump has inflamed global trade tensions, Japan is producing more machinery. Also, Japan's vast services sector expanded by +0.5% last month, above forecasts.

Pound to South African rand

The pound to South African rand interbank exchange rate tanks! Sterling dropped by -2.62% against the rand last week, to 18.95.

The South African rand showed us what it's made of last week, as the springbok nation's economy outperformed. For instance, South African business confidence jumped to 93.3 in September, +2.8 points above forecasts. In addition, South Africa's manufacturing production rocketed by +1.3% in August, well above predictions for a mere +0.6% rise. So this good news buoyed the rand!

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.

References

  1. Anonymous, "Australia's Business Confidence Rises In September: NAB", Tuesday 9th October 2018, Markets.BusinessInsider.com, https://markets.businessinsider.com/news/interestrates/australia-s-business-confidence-rises-in-september-nab-1027599407
  2. Anonymous, "Swiss economy predicted to grow 3% by end of year", Tuesday 9th October 2018, TheLocal.ch, https://www.thelocal.ch/20181009/swiss-economy-predicted-to-grow-3-percent-by-end-of-2018
  3. Cole, Wayne, "Australia economy to keep growing, but much depends on China: Reuters poll", Thursday 11th October 2018, Reuters.com, https://www.reuters.com/article/us-australia-economy-poll/australia-economy-to-keep-growing-but-much-depends-on-china-reuters-poll-idUSKCN1ML2U2
  4. Hosie, Ewen, "Mining leads NAB survey of business confidence", Wednesday 10th October 2018, AustralianMining.com.au, https://www.australianmining.com.au/news/mining-leads-nab-survey-business-confidence/
  5. McBeth, Paul, "NZ dollar gains", Friday 12th October 2018, NewsRoom.co.nz, https://www.newsroom.co.nz/2018/10/11/274099/nz-dollar-gains-5
  6. Poljak, Vesna, "Australian dollar capitalises on US president Donald Trump's jawboning", Friday 12th October 2018, AFR.com, https://www.afr.com/markets/currencies/australian-dollar-capitalises-on-us-president-donald-trumps-jawboning-20181012-h16k6i
  7. Smith, Fergal, "Canadian dollar lags G10 currencies as oil prices tumble", Wednesday 10th October 2018, TheGlobeAndMail.com, https://www.theglobeandmail.com/business/article-canadian-dollar-dips-as-higher-bond-yields-stress-global-growth/
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