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Pound Falls Versus Euro and US Dollar, as Parliament to Debate Brexit

Welcome to Pure FX’s weekly summary plus outlook of the foreign exchange rates.

This tells you what’s affected the exchange rates in the past week, plus what may happen next, for your money transfer!

Pound to euro

Sterling slips on a banana skin versus the euro! The pound to euro exchange rate fell by -0.5 cents last week, to 1.1250.

The pound deflated like an old balloon last week, because of concerns about Brexit. First, the Bank of England warned that, if the UK crashes out of the EU next March, UK GDP may fall by -8%, and sterling by -25%. What's more, it's thought that up to 200 Conservative MPs oppose prime minister Theresa May's planned deal, in which case negotiations may go back to the drawing board!

Meanwhile, the euro held its head higher last week, because there was reassuring economic data from Germany, the Eurozone's engine. For instance, Teutonic unemployment unexpectedly fell by -0.1% this month, to 5.0%, as 16,000 Germans found work. In addition, retail sales in Germany exploded by +5.0% in October compared to a year ago, trashing forecasts. So this lifted the euro!

Outlook

Looking ahead meanwhile, the weather forecast for sterling versus the euro is cloudy. This is because, on the one hand, prime minister May will embark on a 2-week tour to convince MPs to back her Brexit deal, ahead of the crunch vote on November 11th. Yet equally, Eurozone inflation eased to 2.0% in November, cutting the odds that the ECB may lift interest rates in the near future!

Pound to Swiss franc

The pound to Swiss franc exchange rate stumbles over its shoelaces! Sterling weakened by -0.25 cents versus the franc last week, to 1.2750.

The franc strutted its stuff last week, as investors turned on Switzerland as a safe haven, from global economic and political uncertainty. First, US president Donald Trump threatened to heat up his trade war with China, though at the G20 in Argentina he’s called a truce. What's more, Italy's dispute with the European Union over its planned 2019 budget deficit continued.

Outlook

That said, looking forward, the pound could find its feet versus the Swissie. This is because Switzerland's economy unexpectedly contracted in Q3. To be specific, Swiss GDP contracted by -0.2% between July and September, well below hopes for a +0.4% jump, as both domestic demand and exports fizzled out. This echoes the Eurozone's slowdown in Q3, which may weigh on the franc!

Pound to US dollar

Sterling inches backwards versus the greenback! The pound to US dollar exchange rate fell by -0.5 cents last week, to 1.2750.

The buck moved on up last week, first because it was confirmed that America's economy expanded by +3.5% from July to September. This is faster than the UK, Eurozone or Japan, and so confirms the benefit of president Donald Trump's tax cuts and "America First" policies. The buck also gained, as investors sought haven in the US from Mr. Trump's trade tariffs agenda with China.

Outlook

On the other hand though, looking ahead, sterling may perk up versus the almighty dollar. This is because, first, Federal Reserve chairman Jerome Powell said last week that US interest rates are "just below the level that would be neutral for the economy". This has poured cold water on hopes that the Fed will hike interest rates 3 more times in 2019, up to 3.5%, and may hurt the greenback!

Pound to Australian dollar

The pound to Australian dollar exchange rate falls down a mine shaft! Sterling sank by -3.5 cents versus the Aussie last week, to 1.7350.

The AU dollar emerged triumphant last week, because Australian companies announced that they plan to invest more money next year. According to Australia's quarterly CAPEX, Aussie firms will now invest AU$114 billion into next year, +11% higher than previously thought. This will fuel Aussie economic growth in 2019, helping Australia to extend its 27-year stretch without a downturn!

Pound to New Zealand dollar

Sterling jumps off a cliff versus the kiwi! The pound to New Zealand dollar exchange rate fell by -4 cents last week, to 1.85.

The NZ dollar took poll position last week, because the Reserve Bank of New Zealand (RBNZ) said in its latest financial stability report that risks have eased. As a result, the RBNZ relaxed its restrictions on high risk mortgage lending. This will give a welcome leg up to New Zealand's housing market, and fuel GDP growth, as higher house prices make New Zealanders feel wealthier!

Pound to Canadian dollar

Sterling calls mayday versus the loonie! The pound to Canadian dollar exchange rate fell by -0.5 cents last week, to 1.69.

The CA dollar flew higher last week, because Canada signed the new USMCA trade deal with the USA and Mexico. This will give a boost to Canada's exporters, as the USA and Mexico are two close trading partners to Canada! What's more, the Canadian dollar gained, as the price of oil, Canada's biggest export, jumped by +2.3% to $51.45 a barrel, making it more profitable to sell the black gold!

Outlook

That said though, the Canadian dollar may fall, looking ahead. This is Canada's GDP expanded by just +2.0% between July to September, -0.9% below the previous 3 months. In particular, there were fewer vehicle purchases and lower housing investment in Q3 in Canada. What's more, it's thought that the USA, Canada's closest trade partner, is at its growth peak, which may hurt Canada too.

Pound to Japanese yen

Sterling goes back and forth versus the yen! The pound to Japanese yen exchange rate finalised last week where it started, around 145.00.

The yen flew high and low last week, as Japan's economic data was distinctly mixed. On the plus side, Japan's industrial production jumped by +2.9% in October, easily above forecasts for +1.2%, while retail trade rose by +3.5% too. Yet less optimistically, Japan's unemployment rate rose by +0.1% in October to 2.4%, while construction orders tumbled by a mighty -16.5% in the same month!

Pound to South African rand

Sterling puts on the brakes versus the rand! The pound to South African rand exchange rate fell by -1.12% last week, to 17.53.

The rand flexed its muscles last week, first because the South Africa Reserve Bank (SARB) recently hiked interest rates, up to 6.75%. This is to prevent inflation rising in South Africa, which already jumped by +0.2% in October, to 5.1%. Simultaneously though, higher interest rates mean higher returns for investing in South Africa, thus boosting demand for the rand and its value!

Outlook

On the other hand, looking ahead, the pound to South African rand exchange rate could go either way. This is because the rand is being used as a proxy for US president Donald Trump's trade war with China, since South Africa is an open, export-oriented economy, and a global bellwether. If Mr. Trump lays off putting tariffs on China, the rand may rise, though otherwise it could decline!

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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.

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