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Pound Slides Versus Euro and US Dollar, as Conservative MPs Plan Coup

Image credit: Nimalan Tharmalingam.

by Peter Lavelle

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

Pound to euro

Sterling sinks versus the common currency! The pound to euro interbank exchange rate fell -1.25 cents last week, to 1.1225.

The pound fell over its shoelaces last week, chiefly because The Sunday Times published an article, saying that 40 Conservative MPs are prepared to oust prime minister Theresa May. Given that Mrs. May has lost 2 ministers from her government in the last week, this article makes Mrs. May appear fragile, putting into doubt her capacity to negotiate Brexit. Hence, the weaker pound!

Meanwhile, the euro triumphed last week, mostly because the European Commission upgraded its GDP growth forecast for the Eurozone for 2017 to +2.2%, the most in a decade. According to the Commission, the bloc's economic growth is being 'propelled by resilient private consumption, stronger growth around the world, and falling unemployment.' So, as Europe thrives, the euro rises!


What's more, looking forward, sterling could slide further versus the common currency. This is largely because UK Brexit secretary David Davis told Sky News that there's no need to offer 'a number or a formula' for the UK's Brexit bill. In turn, this lifts the odds that the UK will miss December's deadline, to start trade talks with the EU, and therefore the pound could continue to fall!

Pound to US dollar

The pound to US dollar interbank exchange rate loses out! Sterling declined -1 cent against the greenback last week, to 1.3075.

The US dollar triumphed last week, chiefly because the United States Senate took the 1st steps to passing US tax reform, to lower America's taxes. In turn, it's thought that, as Americans pass less of their earnings to the Inland Revenue Service (America's HMRC), the US economy will grow faster. That said, the Senate plans to implement this reform in 2019, later than financial markets would like!

Pound to Swiss franc

Sterling plays the waiting game versus the Swissie! The pound to Swiss franc interbank exchange rate held extremely close between 1.3025 and 1.3150 last week.

The Swiss franc stuck to its guns last week, because there was up-and-down news from Switzerland's economy. To start with, Switzerland's unemployment rate held steady in October, at a remarkably low +3.1%. On the other hand though, Swiss inflation reached just +0.7% last month, -0.1% below predictions, putting less pressure on the Swiss National Bank to lift interest rates above -0.75%.

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate rises! Sterling climbed +1 cent versus the Aussie last week, to 1.7125.

The Australian dollar lost out last week, chiefly because the Reserve Bank of Australia (RBA) held interest rates at 1.5%, while giving little indication that it plans to hike in future. In particular, the RBA said that it's concerned about high household indebtedness Down Under, as well as low wage growth. Given that other central banks in the UK, USA and Canada are hiking, this hurt the Aussie!

Pound to New Zealand dollar

The pound to New Zealand dollar interbank exchange rate holds its ground! Sterling stuck between 1.8925 and 1.90 against the kiwi last week.

Sterling stood still against the kiwi dollar last week, first because the Reserve Bank of New Zealand forecast that inflation will rise to 2.0% by Q2 2018, -9 months earlier than last predicted. This lifts the odds that RBNZ will soon hike interest rates, above their current 1.75%. Yet on the other hand, New Zealand electronic card sales rose just +0.3% in October, -0.3% below forecasts.


What's more, looking ahead, the New Zealand dollar may remain range-bound. This is because, first, the RBNZ has said that how it conducts monetary policy will remain the same, even though the new NZ Labour government's plans to reform the central bank's mandate, to target low unemployment. Yet equally, NZ Labour plans to limit foreign home ownership, thus weighing on the kiwi.

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange remains steady! Sterling held between 1.6625 and 1.6750 versus the loonie last week.

The Canadian dollar was calm last week, first because Bank of Canada Stephen Poloz was neutral about the next move in interest rates. Speaking in Montreal, Mr. Poloz said that the central bank was 'monitoring how the economy was adjusting to rate hikes in July and September.' Hence, Mr. Poloz is keeping his cards close to his chest, about the next interest rate move beyond 1.0%.


What's more, looking ahead, the Canadian dollar could remain sat on its hands. This is because, on the bright side, Canada's building permits jumped +3.8% in September, easily exceeding forecasts for -0.2%. This bodes well for Canada's construction industry. Yet on the other hand, the renegotiation of the North America Free Trade Agreement (NAFTA) still remains up in the air.

Pound to South African rand

Sterling moves on up versus the rand! The pound to South African rand interbank exchange rate jumped +1.88% last week, to 18.92.

The rand lost out last week, first because rumours emerged that president Jacob Zuma is about to announce free tertiary education. This has dragged down the rand, because this may weigh heavily on South Africa's budget. According to economist Sluis-Cremer, 'unless Zuma has a tree with 200 rand notes somewhere we can't afford it.' Hence, this has weakened the South African rand!


Moreover, looking ahead, the SA rand could remain on the back foot. This is because, first, South Africa's manufacturing production unexpectedly fell -1.6% in September year-on-year. This bodes ill for South Africa's already-embattled economy. What's more, the rand could also sink, because the ANC remains set to hold its uncertain leadership vote in December, to replace Jacob Zuma.

Pound to Japanese yen

Sterling stays within range versus the yen! The pound to Japanese yen interbank exchange rate held close between 148.20 and 149.70 last week.

The yen stayed put last week, because Japan's economic performance was mixed. On the one hand, it's thought that Japan's GDP expanded for a 7th consecutive quarter in Q3, the longest stretch in 16 years. That said though, there are clear risks for Japan's GDP, including a possible economic slowdown in China, plus ongoing tensions with North Korea. Hence, the remarkably stable yen!


What's more, looking forward, the yen could stay put. This is because, on the bright side, Japanese manufacturers remain highly optimistic, according to the latest Reuters Tankan. This bodes well for Japan, as an export-based economy. Yet on the other hand, Japan's machinery orders unexpectedly fell -8.1% in September month-on-month, telling us there may be some stormy seas ahead.

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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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