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Pound Slips Versus Euro and Dollar, as UK Retail Sales Fall in June

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

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

Pound to euro

Sterling drops versus the common currency! The pound to euro interbank exchange rate fell by -1.25 cents last week, down to 1.12.

The pound sank into the mud last week, first because UK retail sales unexpectedly declined by -0.4% in June, well below hopes for a +0.5% rise. According to the UK's Office for National Statistics, the good weather and World Cup kept Britons from the shops. What's more, sterling also dipped, as UK inflation held at 2.4% last month, below hopes for a +2.6%, pointing to weak price pressures.

Meanwhile, the euro strengthened last week, chiefly because Eurozone inflation was steady at 2.0% in May, in line with the European Central Bank's target. This lifts the probability that the ECB will end its vast monetary stimulus and lift interest rates sooner. In addition, the euro jumped, as German producer prices jumped to +3.0%, pointing to rising price pressures, and buoyant growth.

Outlook

What's more, looking forward, sterling could remain on the back foot versus the common currency. This is largely because UK prime minister Theresa May won 2 vital Brexit votes by just a whisker last week, thus further undermining her authority. Furthermore, both the Brexiteers and Remainers within her Conservative Party are at loggerheads, boding ill for the UK's political stability.

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate tumbles! Sterling dropped -2.25 cents against the franc last week, to 1.3025.

The franc flexed its muscles last week, chiefly because Switzerland's finance minister Ueli Maurer said that the alpine nation "can live with" the franc at its current value. What's more, Mr. Maurer added that the Swiss National Bank has "made good policy" in recent years. This has boosted the franc, because Mr. Maurer's comments suggest that Switzerland can manage the franc at its present levels.

Pound to US dollar

Sterling trips over its shoelaces versus the greenback! The pound to US dollar interbank exchange fell by -0.75 cents last week, to 1.3150.

The buck won last week, largely because Federal Reserve chairman Jerome Powell made upbeat remarks about the US economy, to the Senate Banking Committee. To be specific, Mr. Powell forecast “years more of steady growth” for America, and "discounted" the impact of a possible trade war with China or Europe. So these upbeat remarks have been a tailwind for the greenback!

Outlook

On the other hand though, the US dollar could stumble, looking forward. This is because President Trump has threatened to hit China with a full $500 billion in tariffs. If Mr. Trump does so, it would hurl the planet into a full-blown trade war, thereby slowing both America's and global economic growth. In addition, Mr. Trump added that he's "not thrilled" that the US Fed is hiking interest rates.

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate sinks! Sterling wobbled -1.5 cents against the Aussie last week, to 1.77.

The AU dollar punched its fist in the air last week, first because a bumper +50,900 new jobs were created Down Under in June, well above forecasts. Furthermore, the vast majority of these jobs were full-time, pointing to quality employment. In addition, Australia's labour force participation rate climbed by +0.2% last month, to 65.7%, as more Australians began the search for work!

Pound to New Zealand dollar

Sterling crashes and burns versus the kiwi! The pound to New Zealand dollar interbank exchange rate declined by -3 cents last week, to 1.9275.

The New Zealand dollar flew higher last week, mostly because kiwi underlying inflation hit +1.7% between April and June, its highest since 2011. Price pressures in New Zealand surprisingly jumped, thanks to costlier electricity and alcohol. This has boosted the kiwi dollar, because this cuts the odds that the Reserve Bank of New Zealand will cut interest rates below 1.75%, as had been feared!

Outlook

That said though, looking forward, the kiwi's winning stream could come to an end. This is because, first, visitor numbers to New Zealand unexpectedly tumbled by -7.8% in June, far below May's +6.2% rise. Tourism is a big chunk of New Zealand's economy, so this points to slower GDP growth. In addition, economic growth in China, New Zealand's biggest trade partner, has slowed in 2018 too.

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate deflates! Sterling sank by -1.5 cents against the loonie dollar last week, to 1.7250.

The CA dollar puffed out its chest last week, first because retail sales in Canada climbed by 2.0% in May, easily outdoing forecasts for +1.1%. Moreover, Canada's manufacturing shipments accelerated by +1.4% in May, far ahead of predictions for just +0.5%. Both these figures tell us that Canada's economy remains in fine fettle, thus boosting the loonie against other currencies!

Outlook

What's more, looking forward, the Canadian dollar could shoot higher. This is because Canada's inflation jumped by +0.3% in June, up to 2.5%, far ahead of the Bank of Canada's 2.0% target. This puts additional pressure on Canada's central bank to lift interest rates, following its recent decision to hike borrowing costs up to 1.5%. In turn, investing in Canada will become more profitable too!

Pound to Japanese yen

Sterling jumps off a cliff versus the yen! The pound to Japanese yen interbank exchange rate fell by -2.23% last week, to 145.76.

The yen came up smiling last week, because Japan has recorded a $5.4bn trade surplus in the first 6 months of 2018. In particular, this is because Japan's exports have exploded by +6.2%, thanks to strong demand for Japanese cars and manufacturing equipment overseas. This suggests that Japan's recovering from its "lost decades" of GDP growth will continue, thus boosting the yen!

Pound to South African rand

The pound to South African rand stays still! Sterling ended last week where it began against the rand, at 17.60.

The rand held its ground last week, first because South Africa's central bank, the SARB, again held interest rates at 6.5%. What's more, while South Africa's retail sales exploded by +1.9% in May year-on-year, above forecasts for +0.5%, springbok inflation climbed -0.2% less than forecast, at just 4.6%. So this mixture of upbeat and downbeat economic data balanced out for the rand!

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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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