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Pound Flexes Its Muscles Versus Euro and US Dollar, on Brexit Optimism

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 strengthens versus the common currency! The pound to euro interbank exchange rate flew by +1.75 cents last week, to 1.1425.

The pound found its get up and go last week, first because The Times newspaper reported that the UK has agreed a deal for its financial services sector with the EU for after Brexit. This would greatly boost the UK's GDP outlook after its exit, in March next year! What's more, sterling also flew higher, as the Bank of England hinted that it may hike interest rates slightly faster in 2019.

Meanwhile, the euro ran out of puff last week, first as the Eurozone's GDP expanded by just +0.2% between July to September, half the rate of 3 months before. This has raised fears that the currency bloc's economic recovery may be past its best. Also, the euro fell, as Eurozone core inflation reached just 1.1% in October, well below the European Central Bank's target of near 2.0%!

Pound to Swiss franc

The pound to Swiss franc exchange rate flies! Sterling rose by +2.5 cents versus the franc last week, to 1.3050.

Why? Well first, because Switzerland's retail sales unexpectedly tumbled by -2.7% in September, far below forecasts for a -0.3% fall. Furthermore, Swiss National Bank chairman Thomas Jordan warned that Switzerland's economy is vulnerable to an extended global trade war. Lastly, Swiss business activity unexpectedly fell to 57.4 last month, said SVME, well below predictions for 58.5.

Pound to US dollar

Sterling hops, skips and jumps versus the greenback! The pound to US dollar exchange rate rose by +1.75 cents last week, to 1.30.

The US dollar fell off a cliff last week, even though America's economy was red-hot. For instance, the USA created a bumper 260,000 new jobs in October, far above forecasts for 190,000, while unemployment held at just 3.7%. The buck fell though, as this great economic news from the world's largest economy encouraged investors to sell US dollars for riskier financial assets elsewhere!

Outlook

Looking ahead meanwhile, the US dollar's outlook is up-in-the-air. On the one hand, US president Trump tweeted last week that he's close to agreeing a trade deal with China. This may further encourage money managers to sell US dollars for foreign assets, thus hurting the buck. That said though, the Federal Reserve remains on-course to hike interest rates to 2.5% in December, which is dollar-positive!

Pound to Australian dollar

The pound to Australian dollar exchange rate slumps! Sterling sank by -0.5 cents versus the Aussie last week, to 1.81.

The AU dollar came out swinging last week, first because Australia's trade surplus exploded to +AU$3,017 million in September, the 3rd highest in history. This is because the value of Australia's iron ore and liquefied natural gas exports have climbed. Also, the Australian dollar put on its skates, as China, Australia's biggest trade partner, has unveiled stimulus to boosts its flagging economy.

Pound to New Zealand dollar

The pound to New Zealand dollar exchange rate tumbles! Sterling lost its footing -1.5 cents versus the kiwi last week, to 1.9550.

The NZ dollar held its head high last week, though this was more to do with global economic factors. For instance, US president Donald Trump announced that he's close to a trade deal with China, which may benefit New Zealand, as one of China's close trade partners. In addition, the kiwi dollar rose, as the global stock market recovered, buoyed by positive results for tech firms like Facebook.

Pound to Canadian dollar

Sterling jumps versus the loonie! The pound to Canadian dollar interbank exchange rate rose by +2.25 cents last week, to 1.7050.

The CA dollar fell off a log last week, first because the price of oil, Canada's biggest export, dipped by the most since mid-2016 in October, as global crude supplies rose. This means that Canada makes less money from selling its black gold to foreign countries, and drags down Canada's GDP growth. What's more, Canada's trade deficit hit -CA$0.42bn in September, well below forecasts.

Outlook

That said, looking ahead, the loonie dollar could move back up. This is because, first, Canada's unemployment rate fell -0.1% in October, to 5.8%, as Canada created a healthy +11,200 new jobs last month. In addition, Canada's GDP expanded by +0.1% in August, ahead of forecasts for stagnation. This will encourage the Bank of Canada to lift interest rates even higher, above 1.75%.

Pound to Japanese yen

The pound to Japanese yen interbank exchange rate puffs out its chest! Sterling gained by +2.35% versus the yen last week, to 147.39.

The yen lost its way last week, first because the Bank of Japan (BoJ) again held interest rates at all-time lows of -0.1%. What's more, the BoJ forecast that borrowing costs would stay "extremely" low for "an extended period". This encourages investors to sell Japanese assets, for assets elsewhere! Also, the Bank of Japan warned against "protectionist moves" from America and China.

Pound to South African rand

Sterling runs out of petrol versus the rand! The pound to rand exchange rate weakened by -1.43% last week, to 18.65.

The rand was crowned champion last week, even though South Africa's economy disappointed. For instance, South Africa's unemployment rose by +0.3% in Q3, to 27.5%, while the trade balance ballooned to -R2.95 billion. That said, the rand triumphed, as investors felt optimistic that the USA and China will reach a trade deal, while stock markets recovered, thus boosting "riskier" assets like 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.

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