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Pound Jumps Against Euro and US Dollar, as BoE on Course to Hike Rates

Image credit: Sam Savine

by Peter Lavelle

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

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

Pound to euro

Sterling hops, skips and jumps versus the common currency! The pound to euro interbank exchange rate flew up +1 cent last week, to 1.1450.

The pound gained last week, first because 2 members of the Bank of England's interest rate-setting committee, Ian McCafferty and Michael Saunders, unexpectedly voted to lift UK interest rates. This significantly boosts the odds that BoE will hike UK interest rates to 0.75% as soon as May. What's more, sterling also gained, as UK retail sales rose by +0.8% in February, above forecasts.

Meanwhile, the euro crashed and burned last week, first because confidence among German investors sank to 5.1 in March, said ZEW, well below last month's 17.8. In particular, German business leaders are worried that US President Trump will unleash a global trade war that could hurt Germany's exports. At present, the EU has only until May 1st to avoid US tariffs on steel and aluminium.

Outlook

What's more, looking ahead, the pound to euro interbank exchange rate could rise higher. This is because EU leaders have formally endorsed the UK's Brexit transition deal, at a summit in Brussels. This gives confidence to UK businesses to continue hiring and investing, and will boost UK growth. Meanwhile, Eurozone business activity slowed in March, which may weigh on the euro!

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate rockets! Sterling flew up +1.25 cents against the franc last week, to 1.34, close to its highest since late-June 2016.

The Swiss franc lost out last week, chiefly because US President Trump ratcheted up his rhetoric about a trade war. This could badly hurt Switzerland, as Switzerland is a small, open, export-oriented economy. That said, on the other hand, the franc may rise if Mr. Trump unleashes a trade war, as international money managers turn to the franc as a safe haven from market turbulence!

Pound to US dollar

Sterling stands taller against the greenback! The pound to US dollar interbank exchange rate gained +2 cents last week, to 1.4150, close to its strongest since the Brexit vote on June 23rd 2016.

The US dollar ran a flat tyre last week, chiefly because even though the Federal Reserve hiked interest rates by +0.25% to 1.75%, the Fed forecast just 2 more hikes this year. This disappointed financial market investors, who'd hoped that the Fed would lift interest rates up to 3 more times this year, to 2.5%. In turn, this will make investing in USD assets less profitable, hurting the buck!

Outlook

What's more, the greenback could continue to fall, looking ahead. This is because, first, President Trump has announced $60bn of tariffs on Chinese goods, which it's feared may instigate a trade war between the world's 2 largest economies. This could weigh on America's GDP. In addition, Mr. Trump is threatening to veto Congress's government funding plan, which may cause a shutdown.

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate flies! Sterling soared +2.25 cents against the Aussie last week, to 1.83, close to its strongest since June 23rd 2016.

The Australian dollar flew like a rock last week, first because the US government declared that Australia will only be exempt from America's steel and aluminium tariffs until May 1st. In the meantime, Australia must negotiate a new trade deal with America, to make the exemptions permanent. This hurt the Australian dollar, as Australia is one of the world's biggest miners of ire ore!

Outlook

Furthermore, looking forward, the Aussie could continue to slide. This is because Australia's unemployment rate jumped +0.1% in February, to 5.6%. In particular, Australia created -2,500 fewer jobs than hoped for last month, at just +17,500. This tells us that slack remains in Australia's job market, which will encourage the Reserve Bank of Australia to keep interest rates steady at 1.5%!

Pound to New Zealand dollar

Sterling gains against the kiwi! The pound to New Zealand dollar interbank exchange rate jumped +1.5 cents last week, to 1.9450.

The New Zealand dollar tripped and fell last week, first because outgoing Reserve Bank of New Zealand caretaker governor Grant Spencer held interest rates at 1.75%. What's more, Mr. Spencer added that New Zealand's cash rate will stay on hold for an 'extended period'. In addition, the kiwi also fell, as New Zealand is a small, export-oriented economy, and so vulnerable to a trade war.

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate slides! Sterling fell -0.25 cents against the loonie last week, to 1.82.

The CA dollar punched higher last week, chiefly because Canadian media reported that Canada, the USA and Mexico are getting closer to renegotiating the NAFTA free trade deal. In particular, respected broadsheet The Globe & Mail revealed that America has dropped its demand that vehicle imports to the USA must contain at least 50% US content. So this could boost Canada's exports!

Outlook

That said, looking ahead, the Canadian dollar could lose out. This is because Canada's 'persistently high' household debt remains a 'key threat', said Bank of Canada policymaker Carolyn Wilkins in a speech last week. In particular, Ms. Wilkins commented that 'the job's not done' to secure Canada's financial stability, in spite of progress since the 2007/8 crisis. So this may weaken the loonie!

Pound to South African rand

Sterling inches lower against the rand! The pound to South African rand interbank exchange rate sank -2.83% last week, to 16.45.

The South Africa rand reached for the stars last week, because credit rating agency Moody's announced its latest rating decision, and surprisingly held South Africa at investment grade. That said though, the rand could weaken in future. This is because South Africa's retail sales expanded just +4.0% in January year-on-year, well below forecasts for 6.2%, and December's figure of 5.3%!

Pound to Japanese yen

The pound to Japanese yen interbank exchange rate moves on up! Sterling climbed +0.74% against the yen last week, to 148.9.

The yen lost its lifejacket last week, first because prime minister Shinzo Abe remains embroiled in a scandal over the sale of land. This may hurt Japan's political stability. In addition, the yen also went weak at the knees last week, as Japan's economic data disappointed. For instance, Japan's leading economic index sank -1.2 points, to 106.2, while Japan's manufacturing PMI eased -0.9 points, to 53.2!

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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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