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Pound Slips Versus Euro and US Dollar, as S&P Doubts BoE Rate Hike

Image credit: William Lepretre.

by Peter Lavelle

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

Pound to euro

Sterling slips versus the common currency! The pound to euro interbank exchange rate sank -1.25 last week, to around 1.1175, its weakest in 3 weeks.

The pound lost out last week, first because credit rating agency Standard & Poor's suggested that the Bank of England is only talking about lifting interest rates, to lift the pound, and so cut UK inflation. What's more, sterling also struggled, as prime minister Theresa May was heckled and suffered a coughing fit while giving her Tory party conference speech, bringing her future into doubt!

Meanwhile, the euro reached for the stars last week, first because Eurozone business activity hit a 4-month high in September, according to IHS Markit. The common currency bloc's performance is 'impressive' and the economy 'energised', says IHS Markit chief economist Chris Williamson. With this in mind, it's thought that Europe will grow by a solid +0.7% in Q3, thus boosting the euro!

Outlook

What's more, looking ahead, the pound's outlook versus the euro remains cloudy. This is because, first, UK car sales fell -9.7% in September year-on-year, the 1st fall in 6 years. This bodes ill for UK consumer confidence. That said, the euro may splutter in future, as Catalonia may press ahead with its attempt to secede from Spain, while Angela Merkel is yet to form a German government.

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate dives! Sterling made like a submarine -1.25 cents against the Swissie last week, to 1.28, its lowest since September 12th.

The Swiss franc came in poll position last week, first because Swiss manufacturing activity jumped to 61.7 in September, according to SVME, well above the 50.0 point that signals growth. This tells us that Switzerland's factories are producing goods like there's no tomorrow. Also, the franc also jumped, as Swiss inflation rose to +0.7% in September YoY, above market forecasts for +0.6%.

Pound to US dollar

Sterling tumbles versus the greenback! The pound to US dollar interbank exchange rate shed -1.5 cents last week, to 1.3125.

The US dollar led the way last week, first because America's unemployment rate fell -0.2% in September, to 4.2%. What's more, even though the USA shed -33,000 jobs last month, it's thought that this is due to temporary factors, namely Hurricanes Harvey and Irma. In addition, the greenback also triumphed, as US manufacturing activity hit a 13-year high in September, according to ISM.

Outlook

What's more, the buck could remain mighty, in future. This is because, first, Federal Reserve chairwoman Janet Yellen recently said it 'would be imprudent' to wait for inflation to hit 2.0%, before lifting interest rates. This has lifted the odds that the Fed will hike above 1.00-1.25% by December. In addition, US President Donald Trump's planned tax cuts could accelerate US GDP growth too.

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate eases! Sterling fell -0.5 cents against the Aussie last week, to 1.69.

The Aussie dollar strutted down the catwalk last week, first because Australia's trade surplus jumped to +AU$989m in August, +22% month-on-month. In particular, Australia exported far more steel to China, lifting the surplus. In addition, Australia's building permits rose +0.4% in August, beating forecasts for a -0.5% fall, driven by a jump in apartment approvals, and lifting the Aussie.

Outlook

That said, looking ahead, the Australian dollar's wings may melt, as it flies closer to the sun. This is because, first, the Reserve Bank of Australia looks unlikely to lift interest rates above their current 1.5%, as household debt in Australia is rocketing. In addition, retail sales Down Under surprisingly fell -0.6% in August, below predictions for +.3%, as Aussie shoppers tighten their belts.

Pound to New Zealand dollar

The pound to New Zealand dollar interbank exchange rate stays calm! Sterling stuck close to 1.8450 versus the kiwi dollar last week.

The New Zealand dollar stayed in neutral last week, first because New Zealand's government surplus jumped to +NZ$4.1 billion in the last fiscal year. This cut New Zealand's public debt to just 22.4% of GDP, the 1st fall since 2008. Yet less positively, New Zealand remains without a government, as the National and Labour parties negotiate with New Zealand First, to form a coalition.

Pound to Canadian dollar

Sterling trips over its shoelaces versus the loonie! The pound to Canadian dollar interbank exchange rate dipped -1.5 cents last week, to close to 1.6450.

The Canadian dollar put its best foot forward last week, first because Canada created +112k new full-time jobs in September. In particular, this was the 10th consecutive month of job creation, the joint-longest streak since the financial crisis. Also, the CA dollar stood tall, because Canada's manufacturing PMI rose +0.4 points last month, to 55.0, as demand for CA goods expanded.

Outlook

On the other hand though, the Canadian dollar may struggle, looking ahead. This is because, first, the Bank of Canada recently said that it will 'watch' the exchange rate. This suggests that the BoC prefers the Canadian dollar to remain lower, to fuel Canada's exports. In addition, BoC governor Stephen Poloz said that the path of interest rates is not 'pre-determined', above their current 1.0%.

Pound to South African rand

The pound to South African rand interbank exchange rate inches backward! Sterling gave up -0.49% against the rand last week, to 17.96.

The SA rand rose last week, though it was likely a dead cat bounce. Looking ahead, the rand could weaken, first because SA private sector activity shrank at the fastest pace in 17 months in September. In particular, output, new orders and employment all fell. What's more, the rand will remain on the back foot, ahead of the ANC's conference in December, to replace leader Jacob Zuma.

Pound to Japanese yen

Sterling dips versus the Japanese yen! The pound to yen interbank exchange rate fell -1.29% last week, to 147.76, its lowest in 3 weeks.

The yen flexed its muscles last week, first because Japan's economy is thought to have grown for 57 consecutive months, the 2nd-longest stretch since WW2. Moreover, optimism among Japanese businesses has hit a 10-year high, according to the latest Tankan survey, while Japan's economy exceeded its output capacity the most in 9 years in Q2, says the Bank of Japan. Hence, the strong yen!

Outlook

Furthermore, the yen could continue to sprint ahead, looking forward. This is because, first Japanese consumer confidence jumped +0.6 points in September, to 43.9. What's more, labour cash earnings rose +0.9% in August year-on-year, well above forecasts for +0.5%. Lastly, Japan's prime minister Shinzo Abe is forecast to easily win re-election, contributing to Japan's political stability.

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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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