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Pound Steady Versus Euro, as UK Services Accelerate In December

Image credit: Sam Savine

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

The pound to euro interbank exchange rate plays dead lions! Sterling stuck between 1.12 and 1.13 against the common currency last week.

Sterling held its own last week, chiefly because the UK's vast services sector expanded more than forecast last month. To be specific, UK services activity hit 54.2 in December, according to IHS Markit's monthly PMI, above November's 53.8. Given that services account for +80% of UK economic output, this data bodes well for UK GDP in Q4 2017! Given this, the pound held its ground.

Meanwhile, the euro stood firm last week, as Eurozone economic activity accelerated at the fastest pace in close to 7 years in December. In particular, output in the bloc's services, manufacturing and construction sectors reached 58.1 last month, said IHS Markit, the highest figure since February 2011. In turn, this signals +0.8% growth on the continent in late 2017, thus supporting the euro!

Outlook

That said though, the pound to euro interbank exchange rate may soon rise. This is because, first, financial markets are bullish that the UK and EU will agree a favourable Brexit deal. In particular, Danske Bank has said that 'we see prospects of a recovery in 2018 as clarification on Brexit increases.' Also, Eurozone inflation fell -0.1% in December, to 1.4%, further below the ECB's target.

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate jumps! Sterling rose close to +0.75 cents against the Swissie last week, to around 1.3225.

The franc sank last week, even though Switzerland's manufacturing sector rocketed ahead. In particular, Swiss manufacturing activity hit 65.2 in December, according to SVME, pointing to rapid growth. The franc weakened though, as the Swiss National Bank looks set to keep interest rates low far longer than other central banks, including the Bank of England and European Central Bank.

Pound to US dollar

The pound to US dollar interbank exchange rate jumps higher! Sterling gained close to +0.5 cents against the greenback last week, to around 1.3550, and at one point hit an 18-month high.

The US dollar trended lower last week, first because the USA created just 148,000 new jobs in December, said the monthly Non-Farm Payroll, below forecasts for 190,000 new roles. What's more, the greenback also struggled, as the minutes of the Federal Reserve's meeting last month said that US 'inflation might stay below the objective for longer than [the Fed] currently expected.'

Outlook

On the other hand though, the buck may rebound in future. This is because, first, doveish chair of the Fed Janet Yellen holds her last meeting in January. It's thought that Dr. Yellen's successor, Jerome Powell, is more bullish, which may prompt the Fed to lift interest rates further. Also, the Fed forecasts that the US Senate's tax reform will lift US GDP, which may boost the buck too!

Pound to Australian dollar

Sterling edges lower versus the Aussie! The pound to Australian dollar interbank exchange eased down close to -0.25 cents last week, to around 1.7275.

The Australian dollar climbed the ladder last week, first because services activity in China, Australia's biggest trade partner, rose sharply in December. In particular, Chinese services hit 53.9 last month, said Caixin, the highest since August 2014. What's more, the Aussie also stood taller, as China restricted metal mining, to clean up China's environment, which will favour Australia's miners.

Outlook

That said though, looking forward, the Australian dollar may lose out. This is because the Reserve Bank of Australia looks set to keep interest rates at record lows of just 1.50% for all of 2018. The RBA may avoid hiking interest rates, to ease pressure on Australia's indebted households. Yet, the RBA may avoid cutting interest rates, to discourage these indebted households from borrowing more!

Pound to New Zealand dollar

The pound to New Zealand dollar interbank exchange rate slides! Sterling fell close to -1.25 cents against the kiwi last week, to around 1.8925.

The New Zealand dollar triumphed last week, because New Zealand's new Labour government has announced that it will lift investment spending, which in turn will boost GDP growth. To be specific, NZ Labour has declared that it will lift capital spending by +NZ$6.7 billion, to NZ$32.9 billion, over the next 4 years. In turn, rising GDP growth may convince the RBNZ to hike interest rates faster!

Pound to Canadian dollar

Sterling tanks versus the loonie! The pound to Canadian dollar interbank exchange rate fell close to -2 cents last week, to around 1.68.

The CA dollar has shot up, first because the price of oil, Canada's biggest export, hit $61.63 a barrel recently, a 2.5-year high. This means that Canada will earn more from the black gold. What's more, Canada surprisingly created a bumper +78.6k new jobs last month, cutting the unemployment rate -0.2%, to 5.7%, well below forecasts for 6.0%. So this has boosted the loonie dollar!

Outlook

What's more, looking forward, the Canadian dollar may rise further. This is because, first, the Bank of Canada is being tipped to hike interest rates 3 times in 2018, above their current 1.0%. This will make investing in Canada more profitable for global money managers, thus lifting demand for the loonie. Furthermore, Canada's economy is predicted to expand by a solid +2.2% this year too!

Pound to South African rand

The pound to South African rand interbank exchange rate stands still! Sterling stuck close to 16.70 against the rand last week.

The rand held steady last week, because markets now feel ambivalent toward new African National Congress leader Cyril Ramaphosa. On the bright side, it's hoped that Mr. Ramaphosa will reform South Africa's economy, and target corruption. Yet equally, financial markets doubt that Mr. Ramaphosa has the influence needed to lift South Africa's outlook. So this has kept a lid on the rand!

Pound to Japanese yen

Sterling hops, skips and jumps versus the Japanese yen! The pound to Japanese yen interbank exchange rate rose +0.87% last week, to around 153.43.

The yen sank beneath the waves last week, chiefly because global economic sentiment was upbeat. In particular, world stock markets continued to hit record highs, and major economies look set to grow solidly. In turn, this has weakened demand for the yen, as a safe haven in times of global upheaval! Also, the yen has fallen, as the Bank of Japan looks set to hold interest rates at -0.1% this year.

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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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