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Pound Steady Versus Euro, as UK Q3 GDP Upgraded To 1.7%

Images credit: James Knowles

by Peter Lavelle

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

This tells you what’s affected the exchange rates recently, and what may happen next, for your money transfer!

Pound to euro

Sterling stays within range versus the common currency! The pound to euro interbank exchange rate stuck between 1.1250 and 1.1364 this week, a tight 1.01% range.

The pound moved little this week, first because reports about UK GDP were mixed. On the bright side, the UK's economic growth for Q3 year-on-year was upgraded by +0.2%, to 1.7%. This tells us that UK economy grew faster than previously thought over the Autumn. Less brightly though, UK households became net borrowers for 4 consecutive quarters in Q3, for the 1st time since records began in 1987!

Meanwhile, the euro was stuck in the mud this week, because there was cloudy economic weather in the Eurozone. To start positively, German business confidence reached 117.2 in December, according to IFO, its 2nd highest ever. On the other hand though, Eurozone core inflation fell -0.1% in November, to 0.9%, telling us that the currency bloc is still struggling to generate price pressures!

Outlook

That said though, looking ahead, the pound to euro interbank exchange rate could weaken in early 2018. This is because, first, the International Monetary Fund (IMF) has downgraded its 2018 GDP forecast for the UK, to just 1.5%. Moreover, the EU's chief Brexit negotiator Michel Barnier has said that there's 'no way' that the UK will get a free trade deal that includes financial services!

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate jumps! Sterling rose +0.32% against the franc this week, to 1.3255.

The Swiss franc ran out of puff this week, chiefly because the Swiss National Bank (SNB) looks set to keep interest rates at record lows of -0.75% for all of 2018. In particular, SNB governor Thomas Jordan said recently that 'inflation is still very low' in Switzerland. Meanwhile, SNB board member Andréa Maechler added that demand for the franc as a safe haven has fallen only 'temporarily'.

Pound to US dollar

Sterling ekes out gains versus the greenback! The pound jumped +0.24% against the US dollar this week, to 1.3370.

The US dollar bit the dust this week, largely because, even though the US Senate passed a huge $1.5 trillion tax reform, it's thought this will do little to lift America's GDP growth. For instance, Capital Economics' Andrew Hunter says that 'any boost to the [US] economy would be small,' while Mazen Issa at TD Securities adds that “Whether [the tax reform] will induce a material shift in investment is unclear.'

Outlook

What's more, looking ahead, the greenback could decline further in 2018. This is because, even though America's central bank, the Federal Reserve, is on course to lift interest rates 3 times in 2018, above their current 1.25%-1.5%, it's thought that this will lift the US dollar less than in the past. 'A central bank loses its ability to shock the market” after 3 hikes, says BMO’s Stephen Gallo!

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate eases downward! Sterling dipped -0.19% versus the Aussie this week, to 1.7343.

The Australian dollar triumphed this week, chiefly because the price of iron ore and copper, 2 of Australia's biggest commodities, is flying high. In particular, the price of copper has risen by +27% in 2017 to date, while iron ore has jumped +25% since October. This means that Australia will make bigger profits from mining and exporting these metals, thus lifting the Australian dollar higher!

Outlook

On the other hand though, the Australian dollar could struggle next year. This is because the Reserve Bank of Australia (RBA) this week played up the risks to Australia's economy. In particular, the RBA warned that there's a 'significant risk' of weak consumer spending Down Under, and that 'debt levels were high'. As a result, the RBA may keep interest rates at record lows of 1.5% in 2018!

Pound to New Zealand dollar

Sterling hops, skips and jumps higher versus the kiwi! The pound to New Zealand dollar interbank exchange rate rose by +0.51% this week, to 1.9091.

The kiwi dollar spun its wheels this week, because New Zealand's trade deficit unexpectedly grew. To be specific, New Zealand's trade deficit reached -NZ$1,193 billion, well above financial market forecasts for -NZ$550m. This was New Zealand's 1st monthly trade deficit of more than -NZ$1 billion for a November since 2005, and was driven by a +27% rise in imports, thus weighing on the kiwi!

Outlook

What's more, looking forward, the kiwi dollar could continue to fall. This is because the price of whole milk powder, one of New Zealand's biggest exports, fell -2.5% to US$2,755 at the GlobalDairyTrade auction this week. This could weigh on the NZ dollar, because this may convince Fonterra, the huge New Zealand dairy cooperative, to cut its forecast payout to kiwi farmers!

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate climbs a notch higher! Sterling rose +0.23% against the loonie this week, to 1.7093.

The Canadian dollar slid this week, because Canada's GDP was unexpectedly stagnant in October, said Statistics Canada, below forecasts for a +0.2% gain. In particular, retail and manufacturing were the only sectors of Canada's economy to enjoy growth in October, while every other sector shrank. This tells us that Canada's economy is thriving less than markets previously thought!

Outlook

In spite of this though, the Canadian dollar may rise in 2018. This is because Canada's inflation jumped by a mighty +0.7% in October, to 2.1%, above the Bank of Canada's target. This suggests that Canada's economy is strong enough to generate higher price pressures, and lifts the odds that Canada's central bank will hike interest rates above their current 1.0%, as soon as early 2018!

Pound to Japanese yen

Sterling hops, skips and jumps higher versus the yen! The pound to Japanese yen interbank exchange rate climbed +1.36% this week, to 151.71.

The yen lost out this week, chiefly because the Bank of Japan (BoJ) held interest rates at their all-time low of -0.1%, and looks set to keep rates low for the foreseeable future. In particular, BoJ governor Haruhiko Kuroda said that 'we won't raise interest rates just because our economy is doing well… we'll consider further easing' if Japan's inflation slides further below the 2.0% target!

Pound to South African rand

The pound to South African rand interbank exchange rate dives like a submarine! Sterling tumbled -4.45% against the rand this week, to 16.93, close to its weakest since September 7th, 15 weeks ago.

The rand flexed its muscles this week, chiefly because pro-business reformist Cyril Ramaphosa won the African National Congress (ANC) leadership election. Mr. Ramaphosa has promised to stamp out corruption in South Africa, support the independence of the South Africa Reserve Bank (SARB), and boost South Africa's economy. So, Mr. Ramaphosa's election victory has boosted 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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