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Pound Rises Versus Euro, as UK Economy Beats Forecasts in Feb 2018

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 happened to the exchange rates in the past week, and what may happen looking ahead, for your money transfer!

Pound to euro

Sterling flies higher against the common currency! The pound to euro interbank exchange rate jumped by +0.5 cents last week, to around 1.1250.

The pound shot up last week, chiefly because the UK economy beat expectations. To start with, the UK's gigantic services sector hit 54.5 in February, according to IHS Markit, well above financial market forecasts for 53.3. In addition, UK retail sales expanded by +0.6% in February compared to a year ago, said the BRC, ahead of predictions for +0.4%. So this upbeat data lifted sterling!

Meanwhile, the euro's wings were clipped last week, because the Eurozone economy showed signs of decelerating. For example, retail sales in the common currency bloc sank by -0.1% in January, disappointing hopes for a +0.3% gain. Furthermore, Germany's industrial production unexpectedly slumped -0.1% at the start of this year, below investors' best guesses for a +0.5% increase.

Outlook

That said though, looking ahead, the pound to euro interbank exchange rate may stay put. This is because, first, European Council president Donald Tusk has put a pause on Brexit talks, until the UK and EU reach an agreement for Ireland's border. This may weigh on the pound. Yet on the other hand, the European Central Bank has cut its inflation forecasts, which could weaken the euro!

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate positively rockets! Sterling shot up +2.25 cents against the franc last week, to 1.3150.

The Swiss franc plunged like an Olympic diver last week, chiefly because US President Donald Trump agreed to meet North Korea's leader Kim Jong-un, to discuss North Korea's denuclearisation. This has lifted hopes that there'll soon be a peaceful resolution to the tense situation on the Korean peninsula. In turn, this has cut demand for safe haven currencies, in particular the Swiss franc!

Pound to US dollar

Sterling ratchets up gains versus the greenback! The pound to US dollar interbank exchange rate climbed +0.5 cents last week, to 1.3850.

The US dollar tucked its tail between its legs last week, chiefly because US President Donald Trump approved tariffs on imports into the USA, of 25% on steel and 10% on aluminium. In turn, it's feared that this could weaken America's economic outlook, as regions including the Eurozone and China retaliate! Also, the greenback also struggled, as US wages rose by just +2.6% in February.

Outlook

That said, looking forward, the buck could find its feet. This is because the USA created a bumper +313,000 new jobs in February, the most in 18 months, and well above forecasts for +200,000. This has fuelled expectations that new Federal Reserve chairman Jerome Powell will hike US interest rates 4 times this year, up to 2.5%. As a result, investing in US assets will be more profitable!

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate sinks! Sterling fell -2 cents against the Aussie last week, to 1.76.

The Australian dollar climbed the ladder last week, because Australia enjoyed a bumper trade surplus in January. To be specific, the trade surplus Down Under reached AU$1,055bn at the start of 2018, easily beating forecasts for AU$300m, as Australia's gold miners exported more of the precious metal. In turn, as Australia exports more, Australia's economic growth could accelerate too!

Outlook

On the other hand though, the Australian dollar may soon bump against a glass ceiling. This is because the Reserve Bank of Australia looks set to keep interest rates at 1.5% for the foreseeable future, at a time when the US Federal Reserve and Bank of England are on course to hike. The RBA is sitting on its hands, because both wage growth and productivity Down Under are stagnating!

Pound to New Zealand dollar

Sterling spirals downward versus the kiwi! The pound to New Zealand dollar interbank exchange rate sank -1.25 cents last week, to 1.8950.

The New Zealand dollar held its head high last week, chiefly because the USA agreed to hold talks over North Korea's denuclearisation. This boosted the NZ dollar, because the kiwi is a 'riskier' commodity currency, and so strengthens when global political sentiment is upbeat. In addition, the kiwi dollar has climbed, as New Zealand's manufacturing sales jumped by +1.0% in Q4 2017!

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate moves stays put! Sterling stuck around 1.7775 cents against the loonie last week.

The CA dollar sank held its ground last week, first because Canada created +15,400 new jobs in February. This is a solid figure, although below financial market forecasts for +20,000 new roles. What's more, the loonie dollar also hung tight, as Canada won an exemption from US President Trump's steel and aluminium tariffs. That said, the threat of further tariffs from the US looms large!

Outlook

On the other hand, looking forward, the CA dollar could trip over its own shoelaces. This is because the Bank of Canada held interest rates at 1.25% last week, citing uncertainty over US President Trump's trade tariffs. In addition, the 7th round of talks to renegotiate the North America Free Trade Agreement (NAFTA) ended in stalemate last week, boding ill for Canada's economy!

Pound to Japanese yen

Sterling surges versus the yen! The pound to Japanese yen interbank exchange rate soared +1.93% last week, to 148.21.

The yen spluttered last week, because Bank of Japan governor Haruhiko Kuroda said that he has no intention of ending his vast stimulus for now. In particular, Mr. Kuroda said that 'We're not thinking at all about weakening the degree of easing, or changing the current monetary easing policy framework, before we achieve 2%' inflation. Right now Japan's inflation is just +0.9%!

Pound to South African rand

The pound to South African rand interbank exchange rate softens! Sterling dropped -0.9% against the rand last week, to 16.36.

The rand climbed the mountain last week, chiefly because South Africa's economy expanded by +3.1% in Q4 compared to 3 months earlier, well above +1.8% forecasts. This marks a clear acceleration in South Africa's GDP, and was driven by a +17.7% jump in farming output, following 2016's drought. Also, South Africa's mining sector produced more too, following recent strikes!

Outlook

On the other hand though, the South African rand is on course to weaken, says a new Reuters poll. In particular, the rand could get dizzy, because financial markets are doubtful that new president Cyril Ramaphosa can transform South Africa's economy. This is because many allies of former president Jacob Zuma remain in influential positions in South Africa's public institutions.

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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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