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Pound Flies High Versus Euro, as UK Retail Sales Beat Forecasts

by Peter Lavelle

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

This tells you what’s happened to the exchange rates in the last week, and what may happen next, for your money transfer!

Pound to euro

Sterling hops, skips and jumps higher versus the common currency! The pound to euro interbank exchange rate rose +0.75 cents last week, up to 1.1450.

The pound triumphed last week, chiefly because UK retail sales exceeded forecasts. To be specific, sales in Blighty's shops climbed by +1.3% in May, well above forecasts for +0.5%, buoyed by Price Harry's wedding and good weather. This suggests that UK retail may have overcome its soft patch following the 'Beast from The East' cold front, and bodes great for the UK Q2 GDP growth!

Outlook

Meanwhile, the euro sank last week, thanks to the European Central Bank (ECB). In particular, even though the ECB announced that it will end its vast stimulus in December, the Eurozone's central bank also signalled that interest rates will stay at 0.0% until at least Summer 2019. What's more, the ECB cut its Eurozone GDP outlook for the next 3 years too. So all this weighed the euro down!

Pound to Swiss franc

Sterling eases versus the Swissie! The pound to Swiss franc interbank exchange rate slid -0.25 cents last week, to 1.3225.

The Swiss franc marched forward last week, because Switzerland's industrial production rose solidly between January and March. In particular, Swiss industrial output jumped by +9.0% in Q1 compared to a year ago, the Swiss Federal Statistics Office, while sales flew by +10.0%. This points to robust demand for Swiss industrial products both home and abroad, and so lifted the franc.

Pound to US dollar

Sterling sinks versus the greenback! The pound to US dollar interbank exchange rate fell -1.75 cents last week, to 1.3250, close to its lowest since mid-November last year.

The US dollar triumphed last week, first because the Federal Reserve, America's central bank, again lifted interest rates, to 2.0%. As a result, US interest rates are among the highest in the industrialised world, attracting money managers to US assets, and boosting demand for the buck. What's more, the Fed may hike 2 more times this year, up to 2.5%, which may also lift the USD.

Outlook

Furthermore, looking forward, the US dollar could continue to strut its stuff. This is because, first, US retail sales exploded by +0.8% in May, said the US Census Bureau, well above forecasts for +0.4%, and the most in 6 months. This could boost the greenback, because US consumer spending is a major component of America's economy, so this points to stronger growth in the U.S. of A.

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate powers up! Sterling jumped +1.75 cents against the Aussie last week, up to 1.78.

The Australian dollar coughed and spluttered last week, because the labour market Down Under went green at the gills. For instance, Australia's labour force participation rate unexpectedly sank -0.1% to 65.5% in May, as fewer Aussie citizens looked for work. In addition, Australia shed -20,600 jobs last month too, pointing to slower antipodean GDP growth. Hence the wobbly Aussie dollar!

Pound to New Zealand dollar

Sterling climbs the ladder versus the kiwi! The pound to New Zealand dollar interbank exchange rate jumped by +0.5 cents last week, to 1.91.

The kiwi dollar tripped over its shoelaces last week, first because New Zealand's electronic card sales rose by just +0.4% in May, disappointing market predictions for +1.2%. This tells us that New Zealanders felt less willing to whip out their wallets last month, and may weigh on kiwi GDP growth. In addition, the kiwi also fell, as Business NZ's PMI sank by -4.4 points in May, to just 54.5.

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate jumps for joy! Sterling rocketed by +0.75 cents last week against the loonie, up to 1.7475.

The Canadian dollar sat by the roadside last week, largely because Canada's factory sector ran out of puff. In particular, Canada's manufacturing shipments fell by -1.3% in April, far below hopes for a +0.6% rise. Why? Well, because Canada's oil and coal refineries went on standby, causing a -10.9% drop in output. In turn, this may slow down Canada's economic growth for Q2 2018!

Outlook

Furthermore, the Canadian dollar could continue to sink, looking ahead. This is chiefly because America's Federal Reserve hiked interest rates to 2.0% last week, and may lift rates 2 more times this year. This lifts demand for the US dollar among international money managers, encouraging investors to take money out of Canada, where interest rates remain steadfast at a lower 1.25%!

Pound to Japanese yen

Sterling slips versus the yen! The pound to Japanese yen interbank exchange rate sank by -0.5% last week, to 146.78.

The yen flew higher last week, because Japan's economy continues to recover from its 'lost decades'. For instance, Japan's services sector index jumped by +1.0% in May, far above forecasts for +0.6%. This points to robust activity in Japanese banks, restaurants, retail, and other services. In addition, Japan's industrial production flew higher by +0.5% in April, above hopes for +0.3%.

Outlook

On the other hand though, the yen could sink, looking forward. This is because the Bank of Japan (BoJ) held interest rates at -0.1% last week, and noted that inflation was weaker than previously thought. This suggests that the BoJ will keep borrowing costs low for an extended period of time, unlike the US Federal Reserve. In turn, global money managers may abandon the Japanese yen!

Pound to South African rand

The pound to South African rand interbank exchange rate thrives! Sterling punched the air +1.59% against the rand last week, to 17.84.

The rand stayed in bed last week, because South Africa's retail sales rose by just +0.5% in April year-on-year, well below the expected +4.1% growth. This tells us that retailers in the springbok nation barely expanded in the last year, and suggests that South African shoppers are feeling restrained. In turn, this may put the brakes on South Africa's already lacklustre economic growth!

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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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