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Pound Wobbles Versus Euro and Dollar, as BoE Unlikely to Hike Further

Image credit: Nimalan Tharmalingam.

by Peter Lavelle

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

Pound to euro

Sterling weaves and bobs versus the common currency! The pound to euro interbank exchange rate moved between 1.12 and 1.1350 last week.

The pound fluctuated last week, because there was mixed news from the UK economy. On the plus side, the UK's services sector expanded at the fastest pace in 6 months, while the Bank of England lifted interest rates for the 1st time in a decade, to +0.5%. Yet less positively, central bank chief Mark Carney said that further rises 'would be at a gradual pace and to a limited extend.'

Meanwhile, the euro see-sawed last week, first because, on the bright side, Eurozone GDP rose by +0.6% in Q3, +0.1% above forecasts. This tells us that the common currency bloc is expanding fast. On the other hand though, inflation in Europe fell -0.1% in October, to +1.4%, putting the European Central Bank under even less pressure to lift interest rates, above their current 0.0%.

Outlook

What's more, looking ahead, the pound to euro interbank exchange rate could continue to spin its wheels. This is because, to start positively, EU chief negotiator for Brexit Michel Barnier said last week that he expects talks to speed up. This may support sterling. Yet less brightly, UK financial firms say they'll start initiating plans to relocate, if there's no transition agreement by early 2018.

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate stays put! Sterling stuck close to 1.31-1.3125 versus the franc last week.

The franc stayed put last week, first because Swiss National Bank vice chairman Fritz Zurbruegg said that Switzerland's low interest rates are 'necessary'. This cuts the odds that the SNB will lift interest rates, like the BoE, Fed, or BoC. Yet on the other hand, KOF's Swiss leading indicator jumped to 109.1 in October, pointing to strong Swiss economic activity, and so supporting the franc.

Pound to US dollar

Sterling sinks versus the greenback! The pound to US dollar interbank exchange rate fell -1.25 cent last week, to around 1.3075.

The US dollar triumphed last week, first because the USA created +261,000 new jobs in October, thereby easily overcoming September's hurricane-related downturn. What's more, America's unemployment rate fell to a new low of just 4.1%. In turn, this upbeat employment data lifts the odds that the Federal Reserve will hike interest rates in December, above the current 1.00-1.25%!

Outlook

That said, looking ahead, the greenback may come up against resistance. This is because, first, US President Donald Trump has nominated Jay Powell as the next chairman of the Federal Reserve. Mr. Powell favours slow and steady interest rate hikes, like current chair Janet Yellen, which may weigh on the buck. What's more, President Trump's Russian connections are growing murkier too.

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate slides! Sterling fell -0.75 cents against the Aussie last week, to 1.71.

The Australian dollar won out last week, first because Australia's trade surplus unexpectedly jumped to AU$1.74 billion in September, as ire ore exports boomed. That said, looking ahead, the AU dollar may struggle, as Australia's retail sales stagnated in September, below +0.4% forecasts, while Australia's deputy prime minister Barnaby Joyce has resigned, for holding New Zealand citizenship.

Pound to New Zealand dollar

Sterling falls off a cliff versus the kiwi dollar! The pound to New Zealand dollar interbank exchange rate dropped -2 cents last week, to 1.90.

The kiwi dollar soared last week, first because economists are starting to think that fears about New Zealand's new Labour government may be overblown. For instance, BNZ economist Jason Wong said that the political risk 'will fade over time, particularly as more details on policy are released.' What's more, New Zealand's unemployment fell -0.2% in Q3 to 4.6%, boosting the kiwi dollar too.

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate dives like a submarine! Sterling dipped -2.5 cents against the loonie dollar last week, to 1.67.

The loonie dollar stood taller last week, first because Canada created +33,300 new jobs in October, easily beating forecasts for +15,000 new roles. This tells us that Canada's job market is on fire. What's more, even though Canada's unemployment rate unexpectedly climbed +0.1% to 6.3% last month, this was because more people rejoined the job force, pointing to optimistic job seekers.

Outlook

That said, the Canadian dollar may hit the brakes, looking ahead. This is because, first, Canada's GDP unexpectedly dropped -0.1% in August, disappointing hopes for a +0.1% gain. In particular, Canada's manufacturing sector underperformed. Also, the CA dollar could stumble too, as Canada has entered a 'crucial spot' of the economic cycle, says Bank of Canada governor Stephen Poloz.

Pound to South African rand

Sterling inches upward versus the rand! The pound to South African rand interbank exchange rate flew up +0.26% last week, to 18.62.

The rand ran out of petrol by the roadside last week, because finance minister Malusi Gigaba predicted slowing growth and rising debts for South Africa, in his budget. In turn, it's thought that credit rating agencies including Standard & Poor's and Moody's will now cut South Africa to Junk, international investors may withdraw up to $14 billion from South Africa, thus hurting the rand!

Pound to Japanese yen

The pound to Japanese yen interbank exchange rate loses ground! Sterling stood back -0.1% last week versus the yen, to 149.34.

The yen flexed its muscles last week, chiefly because Japan's economy exceeded expectations. For instance, industrial production in Japan fell just -1.1% in September, less than the -1.5% predicted. What's more, while housing starts declined -2.9% in September year-on-year, financial markets had pencilled in a larger drop of -3.6%. So this better-than-hoped-for data lifted the yen!

Outlook

That said, looking forward, the yen could lose ground. This is because the Bank of Japan confirmed last week that it will keep interest rates at -0.1%, while injecting huge sums into Japan's financial system, to lift inflation. This could hurt the yen, because this means that Japan is keeping policy easy, when the Bank of England, Federal Reserve and Bank of Canada have started to hike!

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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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