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Monthly Currency Update for September 2019

  • Sterling strengthened against the major currencies in September, as MPs successfully legislated to prevent a ‘No Deal’ Brexit, although there’s no Brexit conclusion in sight.

  • The euro weakened this month, as the European Central Bank cut interest rates and restarted its extraordinary monetary stimulus, to shore up an increasingly stagnant Eurozone economy.

  • The US dollar lost value in September, even though America’s economy continues to outperform forecasts. Meanwhile, impeachment proceedings have begun against President Trump.

  • The Australian dollar declined this month, as the Reserve Bank of Australia is being tipped to cut interest rates below their current all-time low of 1.0%, to stimulate Australia’s economy.

Sterling Overview

The pound has strengthened against the major currencies in September, including the euro, US dollar and Australian dollar.

In part, this is because, in Parliament, opposition MPs successfully passed a law obliging Prime Minister (PM) Boris Johnson to request another extension to Article 50, the UK’s Brexit timetable, if there’s no deal agreed by 17th October. It’s thought that this has reduced the possibility that there’ll be a ‘No Deal’ Brexit, ahead of the current deadline of October 31st.

However, it’s worth noting that, even though a ‘No Deal’ Brexit seems less likely in the immediate future, the conclusion of Brexit remains far from clear. For instance, the UK Supreme Court has ruled that Mr. Johnson’s decision to prorogue Parliament was illegal, yet this ruling has served to antagonise MPs’ relationship with the PM.

Mr. Johnson wants to call a general election, yet MPs refuse to give him permission until he’s asked to extend Article 50, which he’s said he won’t do. Meanwhile, the EU is wondering if it’s worth negotiating with Mr. Johnson, since he doesn’t have Parliament’s support.

Turning to the UK economy, growth continues to hold up, with GDP (Gross Domestic Product) expanding by +0.3% in July. However, forward indicators, such as IHS Markit’s PMIs (Purchasing Managers Indices) point to a deceleration ahead.

Pound to Euro

The pound to euro interbank exchange rate has risen by around +2.3% this month, from 1.10 early in September up to 1.1260 at the time of writing.

In part, this is because the financial markets feel more confident that there won’t be a ‘No Deal’ Brexit, although the negotiations remain up-in-the-air.

In addition though, it’s because the European Central Bank (ECB) cut interest rates in September, while the Eurozone economy has slowed further.

To be specific, the ECB cut its deposit rate by -0.1%, to -0.5%, while restarting its vast Quantitative Easing scheme, by printing €30 billion a month. This is to shore up the bloc’s stagnant economy, led by Germany, which may be in a technical recession.

Pound to US Dollar

Sterling has risen by around +1.1% versus the US dollar on the interbank markets in September, from 1.2150 early this month to 1.2290 today.

As with other major currencies, it’s in part because UK PM Boris Johnson’s government has seemingly backed away from a ‘No Deal’ Brexit.

Turning to the US meanwhile, the Speaker of the House of Representatives Nancy Pelosi has begun impeachment proceedings against President Donald Trump, for apparently pressuring Ukraine’s President to dig up dirt on Mr. Trump’s Democratic rival, Joe Biden. However, Mr. Trump could turn this to advantage, to win re-election in 2020.

Meanwhile, even though the Federal Reserve cut interest rates to 1.75%-2.0% this month, the US economy continues to exceed expectations, which could encourage the Fed to avoid cutting further in future.

Pound to Australian Dollar

The pound to Australian dollar interbank exchange rate gained in value by around +0.97% in September, from 1.8050 at the start of this month to 1.8225 at present.

In part, this is because, in the UK, opposition MPs have legislated to prevent a ‘No Deal’ Brexit, obliging PM Johnson to request an extension.

Meanwhile, turning to Australia, the Reserve Bank of Australia looks set to cut interest rates further next Tuesday 1st October, below their current 1.0%. This is because Australia’s unemployment rate has risen steadily in 2019, while inflation Down Under remains below the central bank’s 2%-3% target.

In fact, according to UBS, the Reserve Bank might reduce borrowing costs all the way down to 0.25%, near the effective lower bound, by May next year.

Pound to New Zealand Dollar

Sterling gained by around +1.55% versus the New Zealand dollar on the interbank market this month, from 1.9275 on September 1st to 1.9575 today.

In part, this is because the world’s investors feel more at ease that there won’t be a ‘No Deal’ Brexit, following Parliament’s legislating against this possibility.

Moreover, the pound has also gained in value against the so-called kiwi dollar, because while the Reserve Bank of New Zealand (RBNZ) held interest rates at 1.0% this month at forecast, the central bank is widely tipped to cut further in future.

In fact, according to the IMF (International Monetary Fund), the RBNZ might even have to begin Quantitative Easing (QE), to protect New Zealand’s economy from the global economic slowdown, and shore up inflation.

Pound to Canadian Dollar

The pound to Canadian dollar interbank exchange rate has risen by around +0.66% this month, from 1.6190 at the start of September to 1.63 today.

Partially, this is because the world’s money managers remain more optimistic that there’ll eventually be a Brexit agreement.

In addition, the Canadian dollar has also weakened, ahead of Canada’s forthcoming general election. In particular, photos of Prime Minister Justin Trudeau as a younger man painted in blackface have been published, hurting Mr. Trudeau’s chances of re-election.

Meanwhile, the Bank of Canada looks set to keep interest rates steady at 1.75%, until the conclusion of the election.

That said, it's worth noting that Canada’s interest rates are often strongly influenced by America’s interest rates, so if the US Federal Reserve cuts in future, the BoC could follow suit.

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