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Sterling Jumps Versus Euro and US Dollar, as Brexit Deal Likelier

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

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

Pound to euro

Sterling gains against the common currency! The pound to euro interbank exchange rate flew +1.5 cents last week, up to 1.1392, its highest in 14 weeks, or since June 22nd.

The pound rose, chiefly because a Brexit deal now looks far likelier. The Irish Times newspaper reported that Ireland may accept UK prime minister Theresa May's proposals for all of the UK to stay in a Customs Union with the EU after Brexit. This would keep the Irish border free of border checks, while also boosting the UK's economic outlook post-Brexit. Hence the sprightly pound!

Meanwhile, the euro lost out, because the Eurozone's economic growth continues to moderate. For example, retail sales in the currency bloc fell by -0.2% in August, according to Eurostat, the 2nd consecutive monthly fall, following July's -0.6% drop. Sales in France, the Eurozone's 2nd largest economy, plus Finland and Latvia fell sharpest. So the Eurozone may run out of steam later in 2018!

Pound to US dollar

The pound to US dollar interbank exchange rate rises! Sterling climbed by +0.75 cents against the greenback last week, to 1.31.

The buck tumbled last week, chiefly because the USA created just 134,000 new jobs in September, said the US Department of Labor, below forecasts for 185,000. This suggests that the red-hot US economy may have unexpectedly lost some momentum, and may prompt the Federal Reserve to pause before lifting interest rates further, above their current multi-year high of +2.25%!

Outlook

That said, looking forward, the greenback may bounce back. This is because many other US economic indicators remain rosy. For instance, America's factory orders jumped by +2.3% in August, easily outdoing July's -0.5% dip. What's more, the United States' services sector exploded to 61.6 last month, said ISM, miles above the 50.0 figure that signals growth, pointing to rapid expansion!

Pound to Swiss franc

Sterling moves on up versus the Swiss franc! The pound to franc interbank exchange rate climbed by +2.25 cents last week, to 1.30.

The franc sank last week, first because Switzerland's retail sales rose by just +0.3% in August compared to a year ago, -0.1% below predictions. This tells us that the Swiss felt reluctant to whip out their wallets on the high street. In addition, Swiss inflation fell -0.2% in September, to just 1.0%. This points to subdued price pressures, and will convince the SNB to keep interest rates low!

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate rockets! Sterling flew +5 cents versus the Aussie last week, to 1.8550, its highest since June 23rd 2016, 27 months ago.

The AU dollar has crashed, because the Reserve Bank of Australia looks likely to keep interest rates at all-time lows of 1.5% for the foreseeable future. By comparison, America's central bank the Federal Reserve has already hiked borrowing costs to 2.25%. Hence, that's a 0.75% gap, the highest in Australia's history, thus making it more profitable to invest in the USA than Australia!

Pound to New Zealand dollar

Sterling surges versus the kiwi! The pound to New Zealand dollar interbank exchange rate climbed by +6 cents last week, to 2.0325, its highest since the UK's Brexit vote on June 23rd 2016.

The NZ dollar has tumbled, first because New Zealand's business confidence fell to -30% between July to September, said NZIER last week. This compares to just -20% 3 months earlier, telling us that kiwi firms feel less optimistic, in part reflecting New Zealand's left-wing government. Also, the kiwi has slumped, in line with emerging market currencies, for which the NZ dollar is often a proxy.

Pound to Canadian dollar

Sterling goes for gold versus the loonie! The pound to Canadian dollar interbank exchange rate rose by +3 cents last week, up to 1.70.

The CA dollar dived last week, even though Canada created a bumper +63,300 new jobs in September, said Statistics Canada, far above forecasts for +25,000 new roles. Why? Well, because all these new positions were part-time, and so will contribute less to Canada's economic growth. As a result, the Bank of Canada looks unlikely to lift interest rates faster, above their current 1.5%!

Outlook

What's more, looking ahead, the outlook for the Canadian dollar is cloudy. This is because, on the bright side, Canada has agreed its new trade deal with the USA and Mexico, the USMCA. This will boost Canada's GDP outlook in the coming years. On the other hand, though Canada enjoyed a +CA$0.53 billion trade surplus in August, this is because imports fell, rather than export rose!

Pound to Japanese yen

The pound to Japanese yen interbank exchange rate inches upwards! Sterling flew up +0.24% against the yen last week, to 148.95.

The yen ran out of puff last week, because Japan's economy disappointed. For example, output in Japan's crucial manufacturing industry hit just 52.5 in September, according to Markit last week, -0.4 lower than predicted. In addition, Japan's services sector activity touched just 50.2, close to the 50.0 that signals stagnation, and well below hopes for 51.8. Hence the weaker Japanese yen!

Pound to South African rand

The pound to South African rand interbank exchange shoots up! Sterling climbed by +5.66% against the rand last week, to 19.58.

The rand dived like a lemming last week, chiefly because America's central bank the Federal Reserve is lifting interest rates. This encourages global money managers to take funds out of emerging market economies like South Africa, given that the USA is the world's largest, most-secure economy, and now offers a higher rate of interest. So as investors exit South Africa, the rand declines!

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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. Babad, Michael, "The Canadian dollar don't get no respect", Friday 5th October 2018, TheGlobeAndMail.com, https://www.theglobeandmail.com/business/briefing/article-the-canadian-dollar-dont-get-no-respect/
  2. Monaghan, Angela, "Unilever abandons plans to move HQ as US jobless rate falls to lowest since 1969 - as it happened", Friday 5th October 2018, TheGuardian.com, https://www.theguardian.com/business/live/2018/oct/05/unilever-abandons-plans-to-move-hq-to-netherlands-business-live
  3. Sable International, "South African Rand not out of the woods yet", Tuesday 2nd October 2018, TheSouthAfrican.com, https://www.thesouthafrican.com/south-african-rand-not-out-of-the-woods-yet/
  4. Smith, Fergal, "Canadian dollar dips as jobs gain seen as not enough to speed up rate hikes", Friday 5th October 2018, TheGlobeAndMail.com, https://www.theglobeandmail.com/business/article-canadian-dollar-recovers-from-one-week-low-as-jobs-gain-supports-rate/
  5. Tupou, Laura, "NZ dollar drops, petrol price rises", Saturday 6th October 2018, NewsHub.co.nz, https://www.newshub.co.nz/home/money/2018/10/nz-dollar-drops-petrol-price-rises.html
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