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Pound Jumps Versus US Dollar, as Mueller Subpoenas Trump Campaign

by Peter Lavelle

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

Pound to euro

Sterling stays still versus the euro! The pound to euro interbank exchange rate ended last week where it started, close to 1.1250.

The pound held its ground last week, because there were mixed tidings for the UK economy. On the bright side, UK unemployment held at 4.3% in the 3 months to September, the lowest in 42 years. Yet on the other hand, the number of employed people in Blighty fell -14k over the same period. This suggests that the UK's red-hot job market may be cooling, thus weighing on sterling!

Meanwhile, the euro played dead lions last week, first because, to start on a positive note, Germany's economy grew by a mighty +0.8% in Q3. This bodes extremely well for the Eurozone's continued expansion. Yet less positively, Eurozone inflation held at 1.4% last month, below the European Central Bank's target of close to 2.0%, pointing to low price pressures on the continent.

Outlook

What's more, looking ahead, the pound to euro interbank exchange rate could remain stable. This is because, on the bright side, UK productivity jumped by +0.9% in Q3, the fastest rate since mid-2011. This tells us that the UK is now producing more per worker. Yet less positively, UK wages rose by just +2.2% in September, well below 3.0% inflation, weighing on Britons' spending power.

Pound to US dollar

Sterling shoots and scores versus the greenback! The pound to US dollar interbank exchange rate rose +1.5 cents last week, to 1.3250, close to a 3-week high.

The US dollar lost its footing last week, chiefly because it emerged that special counsel Robert Mueller has subpoenaed documents from more than a dozen officials, from President Donald Trump's electoral campaign. This has brought down the greenback, because this cuts the odds that Mr. Trump will be able to pass tax reform in the USA, thereby slowing down America's economic growth.

Outlook

That said, looking ahead, the buck could bounce back. This is because, first, the US House of Representatives passed its tax reform bill, making lower taxes in America more likely. What's more, core inflation in the USA, excluding food and energy prices, rose a solid +1.8% in October year-on-year. This raises the probability that the Federal Reserve will hike interest rates in December!

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate jumps! Sterling clawed +0.25 cents against the franc last week, to 1.31.

The Swiss franc fell backwards last week, first because global risk appetite grew, as the US House of Representatives passed its tax reform plans. This reduced demand for the franc, as a safe haven asset. Moreover, the franc also sank, as Swiss National Bank executive Andrea Maechler said that the gap between Switzerland's negative interest rates and other countries could widen!

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate rockets up! Sterling flew +2.75 cents against the Aussie last week, to close to 1.7475, a 6-month high.

The Australian dollar retreated last week, first because Australia created just +3.7k new jobs in October, well below forecasts for +17.5k new posts. What's more, Australia's labour force participation rate sank -0.1%, to 65.1%. All of this bodes ill for Australia's job market. What's more, Australia's consumer confidence sank -1.7% in November, says Westpac, hitting the Aussie too.

Outlook

Moreover, looking forward, the Australian dollar could remain in reverse gear. This is because wages rose just +2.0% in October, close to a historical low. This makes Australians more likely to keep their cash in their wallets, and bodes ill for Aussie retailers over the Christmas period. In addition, the Aussie could also stay down, as the RBA looks unlikely to lift interest rates above 1.5%!

Pound to New Zealand dollar

Sterling positively shoots up versus the kiwi! The pound to New Zealand dollar interbank exchange rate zoomed +4 cents last week, to 1.94, close to its highest since mid-June 2016.

The New Zealand dollar spun its wheels last week, because New Zealand consumer confidence fell -2.6 this month, to 123.7, according to ANZ-Roy Morgan's index. In particular, kiwis are concerned about New Zealand's slowing housing market, plus political uncertainty from the new NZ Labour government. In turn, falling confidence may weigh on New Zealand's economic growth!

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate gains! Sterling climbed the ladder +2 cents versus the loonie last week, to around 1.69.

The Canadian dollar sat back last week, because Canada's inflation fell -0.2% in October, to 1.4%. In particular, price pressures in Canada eased last month, because energy prices fell, as did the cost of clothing. This has dragged down the loonie dollar, because this is well below the Bank of Canada's target inflation of 2.0%, cutting the odds that the BoC will lift interest rates above 1.0%.

Outlook

Moreover, looking ahead, the CA dollar could stay on the back foot. This is because, first, BoC deputy governor Carolyn Wilkins said that the central bank will be 'cautious' over its interest rate moves. In addition, the loonie dollar may stay low, because the North America Free Trade Agreement (NAFTA) talks have resumed, with wide differences between the USA, Mexico and Canada!

Pound to Japanese yen

The pound to Japanese yen interbank exchange rate sinks! Sterling lost out -0.46% against the yen last week, to 148.33.

The Japanese yen stood taller last week, chiefly because Japan's economy grew by +1.4% in Q3, above financial market forecasts for +1.3%. In particular, this was Japan's 7th consecutive quarter of GDP growth, the longest stretch in more than a decade. Japan's economy continued to grow between July and September, as exports jumped +1.5%, buoyed by greater global demand.

Outlook

Moreover, looking forward, the yen could continue to shine. This is because it's thought that Japan's economic expansion will continue into Q4. According to Hidenobu Tokuda at the Mizuho Research Institute, 'The jobs market is doing so well that consumer spending is sure to pick up in the future. Capital expenditure still looks healthy. The economy is doing well.' So this could boost the yen!

Pound to South African rand

Sterling sinks versus the rand! The pound to South African rand interbank exchange rate fell -2.42% last week, to 18.52, a 3-week low.

The rand triumphed last week, first because South Africa's retail sales unexpectedly ballooned +5.4% in September. This tells us that the SA consumer remains resilient. What's more, the rand also reigned supreme last week, as South Africa's bulk exports bulged by +30.7% in October year-on-year, to a new record. This suggests that South Africa is unlikely to re-enter recession soon.

Outlook

That said though, looking ahead, the rand could struggle. This is because of political concerns. To start with, top South Africa Treasury official Michael Sachs resigned last week, weighing on government stability. What's more, president Jacob Zuma's unilateral decision to impose free tertiary education is a dictator-like decision, according to Econometrix's Dr. Azar Jammine 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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