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Pound Slips Versus Euro and US Dollar, as UK GDP Slows in Q1 2018

Image credit: Jean Scheijen

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 dived -0.5 cents last week, down to 1.1350.

The pound played dead lions last week, chiefly because UK GDP rose by just +0.1% in Q1 2018, well below forecasts for +0.3%, and the lowest since Q4 2012. This tells us that the UK economy came close to stagnating in early 2018, and was in part due to the 'Beast from The East' cold front. Also, sterling wobbled, as markets doubted whether the UK will stay in the EU's Customs Union.

That said, the euro struggled to accelerate last week, because the European Central Bank held interest rates at 0.0%, and pledged to extend its vast stimulus beyond September if needed. What's more, the ECB said that it was 'cautious' about the 'loss of momentum' in the Eurozone's economy in the last few months, triggered by strikes in France, and German fears of a global trade war.

Outlook

Moreover, looking ahead, sterling could sink into the mud versus the euro. This is because, with the UK economy slowing down, the Bank of England now looks far less likely to lift UK interest rates next month, up to +0.75%. In turn, lower interest rates will make investing in the UK less profitable for international money managers, and drag down demand for the pound. So sterling may fall!

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate edges downwards! Sterling shed -0.75 cents against the franc last week, to 1.36.

The franc stood on tiptoe last week, though may fall to its knees, looking ahead. This is because Swiss National Bank (SNB) chairman Thomas Jordan continues to talk down the Swissie. To be specific, Mr. Jordan said in Bern last Friday that the franc is still 'highly valued' and that a 'weaker franc is a welcome relief to the economy'. So these remarks could push down the Swiss franc!

Pound to US dollar

Sterling springs a leak versus the greenback! The pound to US dollar interbank exchange rate went underwater -2.25 cents last week, to 1.3775.

The US dollar went to infinity and beyond last week, chiefly because America's GDP rose more than forecast in Q1 2018. To be specific, the US economy expanded by +2.3% between January and March, handily above financial market forecasts for +2.0%. The USA's GDP growth was driven by most sectors of the economy, including consumer spending, trade and business investment.

Outlook

What's more, looking forward, the US dollar could continue to steam ahead. This is because America's economy is shooting for the stars. For example, US new home sales jumped by +4.0% in March, well above forecasts for +1.9%. In addition, US durable goods orders climbed by +2.6% last month, easily beyond predictions for +1.6%. So this upbeat data may boost the mighty buck!

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate falls down a rung of the ladder! Sterling declined -0.5 cents against the Aussie over the course of last week, to 1.82.

The AU dollar stood up and was counted last week, though may dive, looking ahead. This is because Australia's inflation held steady at just 1.9% in Q1, below the Reserve Bank of Australia's target mid-point of 2.0%. This tells us that Australia's economy remains too wobbly at the knees to generate consistently higher price pressures, and puts less pressure on the RBA to hike interest rates!

Outlook

Furthermore, the Australian dollar could also sink, looking forward, because Australia's economy is going through a soft patch. For instance, wages in Australia are rising far slower than the historical norm, eating into living standards Down Under. In addition, with interest rates still at record lows of 1.5% in Australia, there's a risk that the Aussie housing market may form a bubble.

Pound to New Zealand dollar

Sterling goes into reverse versus the kiwi! The pound to New Zealand dollar interbank exchange rate fell -0.5 cents last week, to 1.9450.

The NZ dollar triumphed last week, even though New Zealand unexpectedly reported a -NZ$86 million trade deficit in March, far below hopes for a +NZ$270 million surplus. Instead, the kiwi made gains against the pound, because financial markets bet that the Bank of England is far less likely to lift UK interest rates to +0.75% in May, given that UK GDP growth slowed to just +0.1% in Q1.

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate dives! Sterling slumped -1.75 cents last week, to 1.77, a 2-month low.

The Canadian dollar strutted its stuff last week, yet could weaken in future. This is because, first, Mexico's Economy Minister Ildefonso Guajardo said last week that renegotiating the NAFTA trade deal with the USA and Canada is 'not easy'. In addition, Bank of Canada governor Stephen Poloz highlighted the risks to Canada's economy, while speaking to Canada's Senate banking committee.

Pound to Japanese yen

Sterling limps versus the yen! The pound to Japanese yen interbank exchange dropped -0.45% last week, to 150.46.

The yen triumphed last week, even though the Bank of Japan held interest rates at all-time lows of -0.1%, and dropped its target date to hit 2.0% inflation. This is because Japan's economy beat forecasts. For instance, Japan's leading economic index jumped to 106.0 in February, +0.2% above forecasts. In addition, Japan's industrial production reached 1.2% in March, well beyond hopes for +0.5%.

Pound to South African rand

The pound to South African rand interbank exchange rate grinds lower! Sterling fell -0.58% against the rand last week, to 16.95.

The rand flew higher last week, yet may weaken in future. This is because, first, South African Airways (SAA) received a grilling about its finances by the springbok Parliament. This bodes ill for economic sentiment in Africa's most-industrialised economy. In addition, the rand also span its wheels, as the trade union federation Saftu began strikes. This may drag down South Africa's GDP!

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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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