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Pound Gains Against Euro, as Markets Confident of Brexit Trade Deal

Image credit: Sam Savine

by Peter Lavelle

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

This tells you what’s affected the exchange rates in the last week, and what may happen, looking ahead!

Pound to euro

Sterling triumphs versus the common currency! The pound to euro interbank exchange rate rose by +0.75 cents last week, to 1.1475.

The pound climbed last week, chiefly because financial markets are confident that the UK and EU will agree a favourable free trade pact, following the recent Brexit transition deal. This will significantly lift the UK's economic growth outlook in coming years. In addition, sterling has risen, as the Bank of England looks set to lift UK interest rates by +0.25%, to 0.75%, as soon as May.

Meanwhile, the euro has fallen, because the Eurozone economy has lost momentum. To start with, the Eurozone's composite PMI, measuring business activity in services, manufacturing and constriction on the continent, fell to 55.2 this month, well below February's 58.8. In addition, Germany industrial production unexpectedly sank -1.6% in February, disappointing hopes for +0.3%.

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate flies! Sterling jumped +1.25 cents against the franc last week, to 1.3525, close to its highest since the Brexit vote on June 23rd 2016.

The franc sank last week, first because the franc remains 'highly valued', according to the Swiss National Bank (SNB). This lifts the odds that SNB will continue to intervene to weaken the franc, if the Swiss currency strengthens too much. Furthermore, the franc also lost out, as Switzerland's real retail sales fell by -0.2% YoY in February, while Swiss business activity also eased this month.

Pound to US dollar

Sterling jumps against the greenback! The pound to US dollar interbank exchange rose +0.5 cents last week, to 1.41.

The mighty buck deflated last week, first because the USA created just +103,000 new jobs in March, well below forecasts for +193,000 new roles. This weighed on the US dollar, as this was the fewest new roles in 6 months, and kept America's unemployment rate at 4.1%, above predictions for a fall to 4.0%. In turn, the Fed may be less likely to lift interest rates 3 more times this year!

Outlook

What's more, looking ahead, the US dollar could remain on the back foot. This is because US President Donald Trump's administration is sending distinctly mixed messages about its plans for tariffs with China. On the one hand, new NEC director Larry Kudlow said last week that 'there's nothing around the corner' on tariffs. Yet Mr Trump threatened China with an extra +$100bn in import fees!

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate ends last week where it began! Sterling wound up at 1.8325 versus the Aussie last week.

The AU dollar held its ground last week, first because US NEC director Larry Kudlow played down the odds of a US/China trade war. This lifted the Aussie, as the USA and China are Australia's two closest trade partners, so peaceful trade relations will lift Australia's economy. Yet on the other hand, the Reserve Bank of Australia looks set to keep interest rates at 1.5% for the foreseeable future!

Pound to New Zealand dollar

Sterling loses out versus the kiwi! The pound to New Zealand dollar interbank exchange rate fell -0.75 cents last week, to close to 1.9325.

The New Zealand dollar shot up last week, chiefly because trade tensions between the USA and China eased, following US NEC director Larry Kudlow's comments. This boosted the kiwi dollar, because New Zealand is a small, open, export-orientated economy, with strong trade links with both America and China. So, if the USA and China avoid a trade conflict, New Zealand stands to gain!

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate sinks! Sterling dived -1 cent against the loonie last week, to 1.80.

The CA dollar stood up last week, chiefly because it was reported that US President Trump wants to agree a reworked NAFTA trade deal with Canada and Mexico in the next 2 weeks. This has boosted the loonie, because the USA is Canada's biggest trade partner. So, if Mr. Trump wants to sign a fresh NAFTA, Canada's economic growth outlook for the coming years will look far rosier!

Pound to Japanese yen

Sterling shoots and scores versus the yen! The pound to Japanese yen interbank exchange jumped +1.56% last week, to 151.06.

The Japanese yen ran out of puff last week, because Japan's economic data disappointed. To start with, Japan's services sector reached just 50.9 in March, said IHS Markit, below forecasts for 51.6. In addition, overall household spending in the Land of The Rising Sun jumped just +0.1% in February year-on-year, below forecasts for +0.3%. So this downbeat data weakened the yen!

Outlook

On the other hand though, the yen could strengthen in future. This is because the yen may strengthen as a 'safe haven' currency, if US President Trump escalates trade tensions with China again. By 'safe haven', we mean that Japan is famous for its economic and political stability, like Switzerland. So when there's global uncertainty, investors buy the yen as a safe harbour in stormy seas!

Pound to South African rand

The pound to South African rand interbank exchange rate jumps! Sterling gained +1.74% against the rand last week, to 16.91.

The South African rand dived last week, chiefly because of fears over President Trump's trade war with China. In particular, it's feared that Mr. Trump's sanctions may hurt demand for global commodities, of which South Africa is a major exporter. So, if the US President makes importing to the USA more expensive, global GDP growth may slow, hurting South Africa and the rand too!

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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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