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Pound Sinks Versus Buck, as US Creates More Jobs Than Forecast in Nov

Image credit: Wayne Langley.

by Peter Lavelle

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

This tells you what's affected the interbank exchange rates in the last week, and what might happen looking ahead!

Pound to euro

Sterling stands its ground versus the common currency! The pound to euro interbank exchange held ended last week where it started, between 1.1350 and 1.1375.

The pound wound up where it began last week, because there were mixed reports about the UK's Brexit talks. On the bright side, the UK and the EU agreed Phase 1 of Brexit, including citizens' rights and the Irish border. Yet on the other hand, it's thought that Phase 2, to agree an interim trade deal between the UK and Europe, may be tougher. So this has put a lid on sterling's rise!

Meanwhile, the euro played dead lions last week, because Germany's economy underperformed. In particular, German industrial production tumbled -1.4% in October, while exports fell -0.4% too. This may signal that growth in the German economy is about to slow. Yet more positively, socialist leader Martin Schulz signalled his willingness to enter a 'Grand Coalition' with chancellor Angela Merkel.

Outlook

That said, looking ahead, sterling may rise versus the euro. This is because the UK economy continues to hold up very well. To start with, UK manufacturing and construction activity beat forecasts in November, while UK services growth was 'robust', according to IHS Markit economist Chris Williamson. What's more, UK GDP rose by a solid +0.5% in the 3 months to November, says NIESR!

Pound to US dollar

The pound to US dollar interbank exchange rate slides! Sterling sank -0.5 cents against the greenback last week, to 1.34.

The US dollar triumphed last week, chiefly because the USA created +228,000 new jobs in November, +28,000 above forecasts. This tells us that America's job market remains red hot, while the US unemployment rate held at a very low 4.1%. Moreover, this also boosted the greenback, because with the USA creating lots of jobs, the Federal Reserve is likelier to hike interest rates in 2018.

Outlook

That said though, looking forward, the US dollar may lose out. This is because, first, US wages rose just +0.2% in November, -0.1% below forecasts. This will put a lid on Americans' spending power, and could weigh on US GDP growth. Also, the greenback may slide, because special prosecutor Robert Mueller has subpoenaed Deutsche Bank for President Donald Trump's financial records.

Pound to Swiss franc

Sterling triumphs versus the Swissie! The pound to Swiss franc interbank exchange rate jumped +0.75 cents last week, to 1.33.

The Swiss franc tumbled last week, because Switzerland's inflation rose by less than hoped for in November. In particular, price pressures in Switzerland reached just +0.8% last month, below forecasts for +0.9%. This has weakened the franc, because this low inflation puts less pressure on the Swiss National Bank (SNB) to lift interest rates, while other central banks have now started to hike!

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate edges up! Sterling rose +0.25 cents against the Aussie last week, to 1.78.

The Australian dollar declined last week, because Australia's GDP rose by just +0.6% in Q3, -0.1% below forecasts. In particular, Australia's economy expanded less than forecast between July and September, as consumer spending growth was low. What's more, consumer spending is a 'continuing source of uncertainty' for Australia's growth, said the Reserve Bank of Australia last week.

Outlook

Furthermore, looking ahead, the AU dollar could remain on the back foot. This is because the Reserve Bank of Australia held interest rates at a record low of 1.5% last week, and looks set to keep rates low for the foreseeable future. To be specific, the RBA noted that 'household incomes are growing slowly and debt levels are high,' while Australia's inflation remains below the 2.0% target.

Pound to New Zealand dollar

The pound to New Zealand dollar interbank exchange rate tumbles! Sterling fell -2.25 cents against the kiwi dollar last week, to 1.9375.

The New Zealand dollar triumphed last week, chiefly because NZ Superannuation Fund chief Adrian Orr was named the new governor of the Reserve Bank of New Zealand. Mr. Orr is well-known to New Zealand's business community, and is considered a safe pair of hands, lifting kiwi economy stability. Also, Mr. Orr may be likelier to lift New Zealand interest rates, boosting the NZ dollar too!

Pound to Canadian dollar

Sterling hops, skips and jumps higher versus the loonie! The pound to Canadian dollar interbank exchange rate gained +1.25 cents last week, to close to 1.7225.

The Canadian dollar sank last week, mainly because the Bank of Canada (BoC) held interest rates at 1.0%, while pouring cold water on hopes for hikes in 2018. In particular, BoC governor Stephen Poloz pointed to “ongoing slack in the labour market'. Following the BoC's decision, financial markets are pencilling in just a 30% chance of a hike next year, down from 41%, thus hurting the CA dollar.

Outlook

That said, looking forward, the Canadian dollar could find its feet. This is because Canada's economic growth is predicted to accelerate in 2018, as the North American Free Trade Agreement (NAFTA) renegotiations conclude. Moreover, Canada's housing market remains fighting fit, with housing starts reaching +252.2k in October, above financial market forecasts for just +215.0k starts.

Pound to Japanese yen

The pound to Japanese yen interbank exchange rate edges up! Sterling rose +0.31% against the yen last week, to 152.23.

The yen lost out last week, even though Japan's Q3 economic growth was revised up. To be specific, Japan's GDP rose by +2.5% between July and September, up from the 1st estimate of +1.4%. Japan's economy has now grown for 7 consecutive quarters, the longest streak since 1994. This is thanks to rising exports in the Land of The Rising Sun. In spite of this though, the yen fell last week!

Pound to South African rand

The pound to South African rand interbank exchange rate sinks! Sterling fell -1.13% against the rand last week, to 18.31.

The rand stood taller last week, first because deputy president of the African National Congress (ANC) Cyril Ramaphosa is forecast to win the ANC's leadership contest in December. It's thought that Mr. Ramaphosa will make a break from Jacob Zuma's tenure, and bring South Africa back to economic orthodoxy. In turn, this could make South Africa a more stable place to invest, lifting the rand!

Outlook

What's more, looking ahead, the rand could rise further. This is because, first, South Africa's economy unexpectedly expanded by +2.0% in Q3, above forecasts for 1.7%. This tells us that South Africa's economy is outperforming, in spite of political turbulence. What's more, the rand could also rise, as South Africa's trade surplus surprisingly ballooned between July and September, to R71bn.

 

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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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