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Pound Slides Versus Euro and US Dollar, as UK Economy Slows in April

Image credit: Twistbrain

by Peter Lavelle

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

This tells you what’s happened to the interbank exchange rates in the last week, and what may happen looking ahead, for your money transfer!

Pound to euro

Sterling slides versus the common currency! The pound to euro interbank exchange rate sank -0.25 cents last week, to 1.1325.

The pound tripped over last week, because UK economic data disappointed in April. To start with, Britain's manufacturing sector expanded at the slowest pace in 17 months last month, said IHS Markit, while UK services grew at the 2nd-slowest pace since September 2016. This has cut the odds that the Bank of England will lift UK interest rates to just 10%, thus dragging down sterling!

Meanwhile, the euro stood taller last week, because it's thought that Eurozone GDP will outpace the UK in 2018/19. In particular, the European Commission forecasts that the currency bloc will expand by +2.3% this year, next to the UK's +1.5%. That said, the Eurozone's composite PMI, measuring output in services, manufacturing and construction, eased again in April, said IHS Markit!

Outlook

What's more, looking ahead, sterling could continue to 'umm' and 'ahh' against the euro. This is because the UK government continues to debate what sort of Customs Union it wants with the EU after Brexit. On the other hand though, Eurozone inflation fell to just 1.2% in April, thus cutting the odds that the European Central Bank will mothball its vast monetary stimulus in the near future!

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate slides! Sterling sank -0.75 cents against the franc last week, to 1.3525.

The franc flexed its muscles last week, because there was some upbeat economic data from Switzerland. In particular, SVME's survey of economic output jumped to 63.6 in April, well above forecasts for 60.0, as well as the 50.0 tipping point. That said, Swiss real retail sales sank by -1.8% in March, far beneath hopes for a +0.3% rise, so this could weigh on the franc, looking ahead!

Pound to US dollar

Sterling crashes and burns versus the greenback! The pound to US dollar interbank exchange rate dived -2.25 cents last week, to 1.3550.

The US dollar held its head high last week, primarily because America's economy is still on fire. To start with, the good ole US of A is forecast to grow by +2.9% in 2018, ahead of both the UK and Eurozone, buoyed by President Trump's tax cuts. In addition, the US economy has now grown constantly since June 2009, or 106 months, the 2nd-longest expansion in the history of the United States.

Outlook

That said, looking ahead, the greenback could lose out. This is because America created just +164,000 new jobs in April, -28,000 fewer than forecast. In addition, US wages rose by just +2.6% last month, -0.1% below predictions. In addition, the buck may also weaken, because even though US inflation looks set to rise in coming months, the Fed remains on course to hike just 2 more times in 2018.

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate sinks! Sterling fell -1.5 cents against the Aussie last week, to 1.8025, its lowest since mid-March.

The AU dollar strutted its stuff last week, because there was upbeat economic news Down Under. In particular, Australia's building permits exploded by +14.5% in March year-on-year, more than undoing February's -3.1% fall. This was buoyed by high demand in Victoria. In addition, Australia's trade surplus rocketed to +AU$1,527m in March, easily beating forecasts for just +AU$650m.

Pound to New Zealand dollar

Sterling floats like the Titanic against the kiwi! The pound to New Zealand dollar interbank exchange rate sank -1.25 cents last week, to 1.9325.

The New Zealand dollar stood up and was counted last week, first because the kiwi unemployment rate unexpectedly fell by -0.1% between January and March 2018, to 4.4%. This is the lowest in 9 years, and lifted confidence that wage growth in New Zealand will accelerate. As a result, the Reserve Bank of New Zealand may eventually be likelier to lift interest rates above their current 1.75%!

Pound to Canadian dollar

Sterling dives like a U-boat against the loonie! The pound to Canadian dollar interbank exchange rate dropped -2.5 cents last week, to 1.7425.

The CA dollar shone brightly last week, first because Canada's economy grew by +0.4% in February, said official statistics last week, beyond both forecasts for +0.3%, and January's -0.1% dip. What's more, the loonie dollar also jumped for joy, as it's thought that Canada will successfully renegotiate the NAFTA free trade deal with the USA and Mexico this month. This will boost CA exports.

Outlook

That said, looking ahead, the Canadian dollar may run out of puff. This is because, first, Canada's trade deficit ballooned to -CA$4.14 billion in March, beyond predictions for -CA$2.24 billion. In addition, Bank of Canada governor Stephen Poloz continues to highlight the risks to Canada's economy. In particular, Canada's CA$2 trillion household debt makes Mr. Poloz cautious to lift interest rates, he says.

Pound to Japanese yen

The pound to Japanese yen interbank exchange rate flops! Sterling dived -1.56% against the yen last week, to 147.87, its weakest since mid-March.

The Japanese yen levelled up last week, because Japan's economy exceeded expectations. To start with, Nikkei's manufacturing PMI hit 53.8 in April, above hopes for 53.3. In addition, Markit's poll of Japan's services sector reached 52.5 last month, comfortably above forecasts for 51.7. This suggests that one of Japan's longest economic growth streaks since WWII will continue for now!

Outlook

That said, looking ahead, the yen could lose out. This is because the Bank of Japan has dropped its timeframe for hitting its 2.0% inflation target. In particular, BoJ governor Haruhiko Kuroda said recently that 'there’s considerable uncertainty on the outlook' for Japan's inflation. This suggests that Japan's central bank will wait even longer to lift Japan's interest rates, thus hurting the yen!

Pound to South African rand

The pound to South African rand interbank exchange rate advances! Sterling rose +0.64% against the rand last week, to 17.09.

The rand went wobbly at the knees last week, because optimism that new President Cyril Ramaphosa can turn around South Africa's fortunes is fading. In particular, since Mr. Ramaphosa was elected Head of State in mid-February, South Africa has suffered continued labour strikes and civil unrest. This has lifted fears that South Africa’s economy could remain stuck in the mud, looking forward!

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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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