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Pound Rises Versus Euro, as BoE Saunders Signals Falling Joblessness

Image credit: Carls9893

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 past week, and what may happen, looking ahead!

Pound to euro

Sterling edges upward versus the common currency! The pound to euro interbank exchange rate gained +1.0 cent last week, to around 1.1350, near a 5-week high.

The pound puffed out its chest last week, chiefly because Bank of England policymaker Michael Saunders said that he thinks that UK unemployment will fall even further this year, below 4%. In addition, Mr. Saunders forecast that UK wage growth would rise above 3%, and that 'the economy and labour demand are likely to hold up a bit better than many expect'. This helped sterling!

Meanwhile, the euro folded its hand last week, because several European Central Bank (ECB) policymakers warned against the rising euro. In particular, ECB vice president Vitor Constancio said that the stronger euro is 'unhelpful'. Also, there were rumours that the ECB will extend its vast monetary stimulus beyond September, even though the bank's minutes recently hinted otherwise!

Outlook

Looking ahead, meanwhile, the pound to euro may reach a stalemate. This is because, on the one hand, UK retail sales sank -1.5% in December, below forecasts for -0.6%. This suggests that UK inflation at 3.0% continues to eat into Britons' spending power. On the other hand though, German chancellor Angela Merkel's attempts to form a coalition may fail, as many Socialists are opposed!

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate zooms higher! Sterling gained around +0.5 cents against the franc last week, to 1.3350.

The franc tripped over its shoelaces last week, largely because Swiss National Bank governor Thomas Jordan has once again talked down the franc. To be specific, speaking in Zurich last week, Mr. Jordan said that 'Switzerland has had a strong franc for a long time and it remains highly valued. That’s why we have low interest rates, they should work against the franc’s valuation.'

Pound to US dollar

Sterling shoots up versus the greenback! The pound to US dollar interbank exchange rate rose +1.75 cents last week, to 1.39, close to its highest since June 23rd 2016.

The US dollar deflated last week, chiefly because markets are taking funds out of the USA, now that central banks beside the Federal Reserve are gearing up to lift interest rates. What's more, the greenback also lost, as over the weekend the US government partially shut down. In particular, Senate Democrats are refusing to fund the government, until there's more help for young illegal immigrants.

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate stands taller! Sterling clawed +0.5 cents against the Aussie last week, up to 1.7375.

The Australian dollar played dead lions last week, because there was mixed jobs news Down Under. On the bright side, Australia created a bumper +34,700 new jobs in December, well above forecasts for +9,000 roles. This was the 15th month that Australia has created jobs, the longest streak since 1994. Yet less positively, Australia's unemployment rate jumped +0.1%, to 5.5%!

Outlook

Moreover, looking forward, the Australian dollar may weaken further. This is chiefly because Australia's wage growth remains near record lows, thus eating into Australians' living standards. In particular, Australia's under-employment rate stands at 8.3%, as tens of thousands of Aussies want full-time work. This may persuade the Reserve Bank of Australia to keep interest rates at 1.5% in 2018!

Pound to New Zealand dollar

Sterling takes poll position versus the kiwi! The pound to New Zealand dollar interbank exchange rate jumped +1.75 cents last week, to 1.9075.

The New Zealand dollar tumbled last week, largely because New Zealand business confidence sank. According to NZIER, kiwi business confidence dropped to -12% in Q4 last year, well below forecasts for +2%, and the 1st time below 0% in 2 years. New Zealand firms are less confident, because left-wing party Labour won New Zealand's recent election. So this has hurt the kiwi!

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate flies higher! Sterling gained +2.25 cents versus the loonie last week, to 1.7325, its highest in 7 weeks.

The loonie dollar bit the dust last week, even though the Bank of Canada (BoC) lifted interest rates by +0.25%, to 1.25%. The loonie lost out, as the BoC highlighted the risk for Canada's economy, if the ongoing NAFTA free trade renegotiation talks fail. In particular, the central bank warned that NAFTA uncertainty was feeding 'negative judgement on business investment and trade.'

Outlook

Moreover, looking ahead, the Canadian dollar could continue to sink. This is because Canada's households are the most indebted in the industrialised world, says the OECD, leaving them exposed to higher interest rates. To be specific, Macquarie Capital Markets Canada's David Doyle said last week that 'the Canadian economy has experienced an unprecedented period of hyper-leveraging.'

Pound to Japanese yen

Sterling leaps ahead versus the yen! The pound to Japanese yen interbank exchange rate jumped +0.97% last week, to 153.92, close to its highest since late June 2016.

The Japanese yen sank last week, chiefly because it's now thought that the Bank of Japan will continue its gigantic quantitative easing for the foreseeable future. In particular, dovish BoJ chief Haruhiko Kuroda looks set to be reappointed as governor, affirming the BoJ's commitment to low interest rates. Also, Japan's inflation still sits below 1.0%, far beneath the BoJ's 2.0% goal.

Outlook

That said though, the Japanese yen may find its feet, looking ahead. This is because Japan's economy continues to heat up. First of all, Japan's government lifted its assessment for the economy for the 1st time in 7 months last week, saying that 'Japan’s economy is gradually recovering.' In addition, Japan's machinery orders rose +5.7% in November, well ahead of -1.4% predictions.

Pound to South African rand

The pound to South African rand interbank exchange rate falls asleep! Sterling snoozed around 16.97 against the rand last week.

The rand had sweet dreams last week, chiefly because the South Africa Reserve Bank (SARB) held interest rates at 6.75%, as forecast. What's more, though the SARB lifted its GDP growth outlook for South Africa in 2018 by +0.2%, to 1.6%, the SARB also said that the outlook is 'fragile' and 'challenging'. So these mixed tidings have kept the South African rand firmly grounded!

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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.

References

1. Alliance, 'Swiss Franc Advances Against Majors', January 18th 2018, III.co.uk, http://www.iii.co.uk/alliance-news/1516267989023440800-3/swiss-franc-advances-against-majors
2. Angela Monaghan and Nick Fletcher, 'UK retail sales fall sharply in December, US consumer confidence dips', January 19th 2018, Guardian.co.uk, https://www.theguardian.com/business/live/2018/jan/19/pound-edges-higher-ahead-of-uk-retail-sales-business-live
3. Gareth Hutchens, 'Australia saw record jobs boom in 2017 but future bleak on wages', January 18th 2018, Guardian.co.uk, https://www.theguardian.com/business/2018/jan/18/australia-saw-record-jobs-boom-in-2017-but-future-bleak-on-wages
4. Haresh Menghani, 'The US dollar remains under pressure', January 19th 2018, FXStreet.com, https://www.fxstreet.com/news/the-us-dollar-remains-under-pressure-bbh-201801191219
5. James Mayger and Masahiro Hikada, 'Despite jumpy market, Bank of Japan watchers don’t expect a policy change anytime soon', January 19th 2018, JapanTimes.co.jp, https://www.japantimes.co.jp/news/2018/01/19/business/economy-business/despite-jumpy-market-bank-japan-watchers-dont-expect-policy-change-anytime-soon/#.WmIRRainHIU
6. Rebecca Howard, 'NZ dollar drops more than half a US cent on upbeat Federal Reserve report', January 18th 2018, NZHerald.co.uk, http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11977384
7. Reuters Staff, 'Swiss National Bank's Jordan says negative rates still needed', January 16th 2018, Reuters.com, https://www.reuters.com/article/swiss-snb-jordan/update-1-swiss-national-banks-jordan-says-negative-rates-still-needed-idUSL8N1PB67S
8. Reuters Staff, 'In great central bank policy unwind, don't forget the SNB', January 15th 2018, Reuters.com, https://www.reuters.com/article/eurozone-bonds-snb/graphic-in-great-central-bank-policy-unwind-dont-forget-the-snb-idUSL8N1P7530
9. Roger Blitz, Leo Lewis and Robin Harding, 'Nervous investors put the Bank of Japan in the spotlight', January 16th 2018, FT.com, https://www.ft.com/content/f2ec1362-f7ab-11e7-88f7-5465a6ce1a00
10. Reuters Staff, 'Japan government upgrades economic view, first time in seven months', January 19th 2018, GulfNews.com, http://gulfnews.com/business/economy/japan-government-upgrades-economic-view-first-time-in-seven-months-1.2159720
11. Reuters Staff, 'South Africa holds rates as inflation risks offset rand strength', January 18th 2018, Reuters.com, https://www.reuters.com/article/safrica-rates/update-1-south-africa-holds-rates-as-inflation-risks-offset-rand-strength-idUSL8N1PD4B1
12. Richard Leong, 'Dollar slips on jitters over possible U.S. government shutdown', January 17th 2018, Reuters.com, https://www.reuters.com/article/uk-global-forex/dollar-slips-on-jitters-over-possible-u-s-government-shutdown-idUSKBN1F6063

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