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Pound Stable Versus Euro, as ECB Says Interest Rates To Stay Low

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 stays within range versus the common currency! The pound to euro interbank exchange rate held between 1.13 and 1.14 last week.

The pound stuck to its guns last week, because there were mixed reports from the UK. On the bright side, UK retail sales surprisingly jumped +1.1% in November, well above forecasts for +0.4%. This supported sterling. On the other hand though, UK inflation rose +0.1% last month, up to 3.1%. This is the highest inflation since 2012, and puts continued pressure on Britons' spending power!

Meanwhile, the euro stayed where it was last week, as the European Central Bank (ECB) had mixed things to say. To start positively, the ECB "substantially" lifted its 2018 GDP forecast for the Eurozone, by +0.5% to 2.3%. Yet less brightly, the ECB warned that Eurozone interest rates will stay at 0.0% "for an extended period of time". This thereby dragged down the common currency!

Outlook

What's more, looking ahead, the pound to euro interbank exchange rate may stay put. This is because, first, the UK and EU agreed Phase 1 of Brexit, including the withdrawal bill, citizens' rights and the Irish border. Equally though, European Commission president Jean-Claude Juncker warned recently that Phase 2, the Brexit transition deal, “will be harder". This may limit sterling's rise!

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate falls! Sterling slid -1.5 cents against the Swiss franc last week, to around 1.32.

The Swiss franc stood taller last week because, even though the Swiss National Bank (SNB) held interest rates at -0.75%, the SNB lifted its inflation forecasts. In particular, the SNB now predicts that inflation will reach 0.7% in 2018, +0.3% higher than previously forecast, and 2.1% by Q3 2020. In turn, these higher inflation forecasts lift the odds that SNB will eventually hike interest rates!

Pound to US dollar

Sterling edges down versus the greenback! The pound to US dollar interbank exchange rate tumbled -0.75 cents last week, to close to 1.3325.

The US dollar flexed its muscles last week, first because US retail sales jumped by +0.8% in November, well above market forecasts for +0.3%. This bodes well for America's continuing economic growth. What's more, the buck also stretched its wings, as it's thought that President Trump's administration will soon pass a tax reform, to cut taxes and thus accelerate the USA's GDP growth.

Outlook

On the other hand though, the US dollar could weaken, looking ahead. This is because, first, America's core inflation unexpectedly fell -0.1% in November, to 1.7%. This tells us that the US economy is still too weak to generate sustained price pressures. In turn, this cuts the odds that the Federal Reserve will hike interest rates more than 3 times in 2018/2019, above 1.25-1.5%!

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate totally sinks! Sterling fell -4.75 cents against the Aussie last week, to 1.7375, its weakest in a month.

The Australian dollar hopped, skipped and jumped last week, first because Australia created +61,600 new jobs in November, easily beating +18,000 forecasts. This tells us that Australia's job market is red hot, and bodes well for future GDP growth. Moreover, Australia's labour force participation rate rose +0.4% to 65.5% last month too, as more Australians began looking for work!

Outlook

What's more, looking forward, the Aussie dollar could rise higher. This is because, first, there's been "encouraging Chinese November economic activity," according to Commonwealth Bank's Elias Haddad. This could lift the AU dollar, as China is Australia's biggest trade partner. What's more, the Aussie could gain too, as consumer confidence Down Under rose by +3.6% this month, says Westpac.

Pound to New Zealand dollar

Sterling dives like a submarine versus the kiwi! The pound to New Zealand dollar interbank exchange rate fell -5.5 cents last week, to 1.90, its lowest since November 9th, or 5 weeks.

The New Zealand dollar triumphed last week, chiefly because NZ national pension 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

The pound to Canadian dollar interbank exchange rate swings wildly! Sterling flew between 1.58 and 1.7750 last week.

The Canadian dollar jumped about last week, largely because Bank of Canada governor Stephen Poloz was ambiguous about the outlook for interest rates. To start with, Mr. Poloz said that “we will continue to be cautious in our upcoming policy decisions." Yet also, Mr. Poloz said that he is "increasingly confident the economy will need less stimulus over time." Hence the wobbly Canadian dollar!

Pound to Japanese yen

Sterling runs out of puff versus the Japanese yen! The pound to yen interbank exchange rate declined -1.61% last week, to 149.63.

The yen came in poll position last week, first because Japan's machinery orders jumped by +2.3% in October, far ahead of -2.8% predictions. What's more, according to the closely watched Tankan survey, business confidence in The Land of The Rising Sun hit an 11-year high in November too. In particular, Japanese businesses feel upbeat about both domestic demand and exports.

Outlook

What's more, looking forward, the Japanese yen could continue to shine. This is because, first, there are rumours that the Bank of Japan could soon cut back its vast monetary easing. This will lift the yen, as the Bank of Japan will inject smaller sums into Japan's financial system. What's more, the yen may rise, as Japan's low unemployment rate may soon force firms to pay higher wages too!

Pound to South African rand

The pound to South African rand interbank exchange rate slips! Sterling fell -4.37% against the rand last week, to 17.49.

The South African rand jumped ahead last week, because it's thought that African National Congress (ANC) deputy president Cyril Ramaphosa won the ANC's leadership contest over the weekend. If Mr. Ramaphosa's win is confirmed, he'll replace the ANC's corrupt and dictator-like leader Jacob Zuma, and he may put South Africa back on the path to economic orthodoxy and prosperity.

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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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