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Sterling Jumps Versus Euro, as Raab Optimistic for Brexit Deal

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 jumps versus the common currency! The pound to euro interbank exchange rate has risen +1.25 cents last week, to 1.1250.

The pound has strengthened recently, because there's optimism that the UK and EU will agree a Brexit deal, by the November deadline. For instance, UK Brexit secretary Dominic Raab said recently that negotiations continue in "good faith". What's more, sterling has also climbed, as the Confederation of British Industry's survey of UK retailers hit +23% in September, above hopes for +16%!

Meanwhile, the euro has sunk, first because Eurozone core inflation, which strips out imported food and energy prices, fell to +0.9% this month, well below forecasts for +1.1%. This tells us that the currency bloc remains too wobbly at the knees to generate significantly higher price pressure. In turn, this will encourage the European Central Bank to keep interest rates at 0.0% for longer.

Outlook

Furthermore, looking ahead, sterling could rocket higher versus the euro. This is because Italy has announced a deficit target of +2.4%, above the Eurozone's limit of +2.0%. This sets Rome on a collision course with Brussels, while Italy is already one of the most indebted developed countries in the world. This risks re-igniting the Eurozone debt crisis, which may soon drag down the euro!

Pound to US dollar

The pound to US dollar interbank exchange rate edges lower! Sterling slipped -0.5 cents against the greenback last week, to 1.3025.

The buck flexed its muscles last week, first because America's central bank, the Federal Reserve, hiked interest rates for the 3rd time this year, up to 2.00-2.25%. Furthermore, the Fed is on course to lift borrowing costs 1 more time this year, and 3 more times in 2019, up to 3.25%. If so, US interest rates would be far higher than elsewhere in the rich world, thus boosting the buck!

Outlook

Moreover, looking ahead, the greenback could continue to rocket. First, this is because it was confirmed that America's economy expanded by a mighty +4.2% in Q2, the most since Autumn 2014. In addition, US GDP could accelerate even further, up to 4.3% between July and September, reckons the Atlanta Fed. As a result, Americans will feel wealthier, putting wind beneath the USA's wings!

Pound to Swiss franc

Sterling jumps versus the Swissie! The pound to Swiss franc interbank exchange rate flew up +2.5 cents last week, to 1.28.

The franc sank last week, first because financial markets reckon that it's unlikely that the Swiss National Bank (SNB) will intervene to weaken the franc. Global money managers take this as permission to buy the franc, which lifts its value. Also, the franc lost out, as trade tensions between the USA and China have eased, thereby lessening the appeal of Switzerland as a safe haven.

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate moves on up! Sterling climbed +1 cent versus the Aussie last week, to 1.8075.

The Aussie tumbled last week, chiefly because America's Federal Reserve lifted interest rates, while the Reserve Bank of Australia (RBA) looks set to sit on its hands for the foreseeable future. As the USA lifts interest rates, this makes investing in America more profitable than other countries, given that the USA is the world's largest, most secure economy, and now offers a good rate of return.

Pound to New Zealand dollar

Sterling strengthens versus the kiwi! The pound to New Zealand dollar interbank exchange rate climbed by +1.25 cent last week, to 1.97.

The New Zealand dollar burst a tire last week, first because New Zealand's trade deficit hit a record high. The kiwi trade deficit jumped to -NZ1.48bn in August, well above the -NZ$930m forecast, and the most ever for an August. In particular, New Zealand's oil imports exploded, as the price of petroleum has shot up by +60% recently, as US president Donald Trump puts controls on Iran.

Outlook

Furthermore, looking ahead, the kiwi dollar could remain on the back foot. This is because the Reserve Bank of New Zealand (RBNZ) held interest rates at 1.75% last Wednesday, as forecast. Speaking recently, RBNZ governor Adrian Orr has said that kiwi borrowing costs will stay on hold for around 2 years, to cool New Zealand's housing market, and make export prices competitive.

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate slumps! Sterling shed -2.5 cents versus the loonie last week, to 1.6725.

The CA dollar put its skates on last week, first because Canada's economy expanded by a healthy +0.2% in July, above forecasts for +0.1%. What's more, Canada's wholesale sales jumped by +1.5% in July, beyond hopes for +0.4%. In addition, the USA and Canada reached a deal to replace the NAFTA free trade agreement, which will significantly boost Canada’s economic growth outlook in future.

Outlook

Furthermore, looking ahead, the Canadian dollar may gain further. This is because Bank of Canada (BoC) governor Stephen Poloz said in a speech last week that he doesn't want to let inflation momentum build. Given this, it's very likely that the BoC will hike interest rates in October, above their current 1.5%. This will be far ahead of the UK, Eurozone or Japan, thus boosting the loonie!

Pound to Japanese yen

Sterling edges higher versus the yen! The pound to Japanese yen interbank exchange rate gained +0.44% last week, up to 148.42.

The yen went wobbly at the knees last week, because the Bank of Japan (BoJ) released the minutes of its latest meeting, in which it remained committed to keeping interest rates at all-time lows of -0.1%. The BoJ is keeping borrowing costs low, to boost price pressures in Japan, and lift The Land of The Rising Sun from its 2 decade-long stretch of deflation. This though weakens the yen!

Outlook

That said though, the yen could strengthen in future. This is because Japan's economy is in the pink. For instance, Japan's retail trade climbed by +0.9% in August, far above predictions for +0.1%, telling us that Japanese shoppers are happy to whip out their wallets. Furthermore, Japan's unemployment fell again in August, to an astonishing 2.4%, suggesting that jobs are plentiful in Japan!

Pound to South African rand

The pound to South African rand interbank exchange rate tumbles! Sterling fell by -1.96% last week, to 18.44.

The rand flew higher last week, chiefly because US president Donald Trump's trade tensions with China cooled. This fuelled hopes that the outlook may be brighter for global trade, which in turn lifted emerging market economies like South Africa. In addition, the rand rose, as South Africa's trade surplus jumped to R8.79 billion in August, handily exceeding forecasts for just R5.0 billion.

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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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