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Pound Gains Versus Euro and US Dollar, as Chancellor Hammond Upbeat

Image credit: Steven Banks

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 interbank exchange rates in the past week, plus what may happen next, for your money transfer!

Pound to euro

Sterling hops, skips and jumps against the common currency! The pound to euro interbank exchange rate flew higher +1 cent last week, to just below 1.1350.

The pound came out swinging last week, first because UK Chancellor of The Exchequer Philip Hammond was upbeat about the UK economy, at his Spring Statement. In particular, Mr. Hammond highlighted that the UK's public debt will soon start to fall for the 1st time in 17 years. Also, the Office for Budget Responsibility lifted its 2018 GDP growth forecasts for the UK by +0.1%, to 1.5%.

Meanwhile, the euro was stuck in the mud last week, because Eurozone inflation was -0.1% lower than first thought in February, at 1.1%. This is even further beneath the European Central Bank's target of close-to-but-below 2.0%, and so puts less pressure on the ECB to hike interest rates in the near future. In addition, ECB President Mario Draghi said that Eurozone inflation was 'subdued'.

Outlook

Furthermore, looking forward, sterling could continue to climb against the euro. This is because it's thought that the UK and EU will soon agree a Brexit transition deal. In particular, UK junior Brexit minister Robin Walker told the Institute of Directors last week that we're 'very close' to a transition agreement. In turn, this will give UK firms the confidence to hire and invest, boosting growth!

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate aims for the stars! Sterling rocketed +1 cent against the franc last week, to close to 1.3275.

The Swiss franc sank last week, because the Swiss National Bank (SNB) again held interest rates at -0.75%, the lowest in the industrialised world. In particular, SNB chairman Thomas Jordan said the Switzerland may become a safe haven if Donald Trump ignites a trade war, and that Switzerland is 'dependent upon an open world market'. Mr. Jordan also warned of a 'correction' in Swiss real estate prices.

Pound to US dollar

Sterling spreads its wings versus the greenback! The pound to US dollar interbank exchange rate soared +0.75 cents last week, to around 1.3925.

The US dollar slumped last week, first because President Trump fired Secretary of State Rex Tillerson. It's thought that Mr. Tillerson favoured free trade, and that his firing will encourage Mr. Trump to pursue protectionist policies. The greenback also struggled, as Mr. Trump’s new chief economic adviser Larry Kudlow said that “China needs a comeuppance on trade, I believe that.'

Outlook

Moreover, looking ahead, the buck could spiral further downwards. This is because, first, US inflation rose by just +2.2% in February, below some investors' hopes. This could encourage the Federal Reserve to hike interest rates only 3 times in 2018, up to 2.25%, when some money managers want 4 hikes. In turn, these lower interest rates make investing in US assets less profitable!

Pound to Australian dollar

The pound to Australian dollar interbank exchange positively explodes! Sterling zoomed +4.75 cents versus the Aussie last week, to 1.8075.

The Australian dollar dived dived dived last week, because America's new chief economic adviser Larry Kudlow told CNBC that China needs a 'tough response' on trade. This has hurt the Aussie, because China is Australia's closest trade partner. Hence, if the USA imposes protectionist policies and trade tariffs on China, the economy Down Under could suffer too. Hence the weak AU dollar!

Outlook

Furthermore, the Aussie could continue to slide, looking forward. This is because, first, Australia's home loans unexpectedly tumbled by -1.1% in January, far below forecasts for a -0.1% fall. This was the 2nd monthly fall on the trot in home loans Down Under, following December's -2.3% dip. Australia's housing authority has tightened lending conditions on investors, to help 1st-time buyers.

Pound to New Zealand dollar

Sterling goes to infinity and beyond versus the kiwi! The pound to New Zealand dollar interbank exchange rate climbed +3.75 cents last week, to close to 1.9325.

The New Zealand dollar deflated last week, chiefly because kiwi GDP rose by just +2.9% in Q4 year-on-year, said Statistics New Zealand, -0.2% beneath forecasts. In particular, New Zealand's economy grew less than hoped for, as hot weather slowed down dairy production. As a result, the Reserve Bank of New Zealand may now keep interest rates on pause at 1.75% for longer!

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate knows no limits! Sterling won +5 cents versus the loonie last week, to 1.8250.

The Canadian dollar jumped like a lemming last week, because Bank of Canada governor Stephen Poloz gave cautious remarks in a speech. In particular, Mr. Poloz said that there's 'slack' remaining in Canada's job market, and 'uncertainty' regarding US President Trump's trade policies. As a result, the BoC looks less likely to hike interest rates above 0.75% in the near future!

Outlook

What's more, looking forward, the CA dollar could slide further too. This is because, to start with, Canada's manufacturing shipments fell -1.0% in January, below forecasts for -0.8%. In addition, Canada's home sales declined -6.5% last month, pointing to softness in Canada's housing market. Equally though, household debt as a share of income in Canada stayed near a record high in Q4!

Pound to Japanese yen

Sterling plays dead lions versus the yen! The pound to interbank exchange rate ended last week close to where it began, at 148.00.

The yen held steady last week, as there was mixed news from Japan. To start with, prime minister Shinzo Abe got caught up in a scandal about the sale of land below market prices. This may lift the yen, because even though this is downbeat news for Japan's political stability, the yen is a safe haven currency. That said though, Japan's industrial production tumbled by -6.8% in January!

Pound to South African rand

The pound to South African rand interbank exchange rate climbs the ladder! Sterling jumped by +1.89% against the rand last week, to 16.70.

The rand fell into a tailspin last week, chiefly because there are fears that US President Trump may impose further protectionist policies, and spark a global trade war. This has dragged down the rand, because South Africa is a relatively small, open economy, which exports lots to the outside world. Hence, if there's a global trade war, South Africa's economy could enter the line of fire!

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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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