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Pound to Euro Rate Rises, as ‘No Deal’ Brexit Less Likely

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

Pound to euro

Sterling edges upwards versus the euro! The pound to euro interbank exchange rate rose by +0.5 cents last week, to 1.1450.

The pound has strengthened, first because UK unemployment held steady at 4.0% in December, said the Office for National Statistics, the lowest since the mid-1970s. Meanwhile, UK average earnings stayed at +3.4%, the most since the financial crisis. This tells us that the UK jobs market remains in the pink, even with the Brexit uncertainty, and will help sustain the UK's GDP growth!

Meanwhile, the euro weakened last week, as the Eurozone's economy continues to run out of puff. First of all, Germany's GDP stagnated between October and December last year. This bodes ill, as Germany is the Eurozone's largest economy, its engine. Furthermore, Eurozone inflation fell by -0.1% in January, to 1.4%, further from the European Central Bank's (ECB) near-2.0% target.

Outlook

What's more, looking ahead, the pound to euro interbank exchange rate may strengthen further, in my opinion. This is because the UK looks increasingly unlikely to crash out of the EU with a "No Deal" Brexit. In particular, up to 100 Conservative MPs say they're willing to compel prime minister Theresa May to extend Article 50, to reach a deal. This may boost the UK's outlook, and GBP too!

Pound to US dollar

The pound to US dollar interbank exchange rate gets a leg-up! Sterling gained by +0.75 cents versus the greenback last week, to 1.2975.

The mighty buck was humbled last week, as America's economy showed signs of running out of puff. To start with, existing home sales in the U.S. of A fell by -1.25% in January, said the National Association of Realtors, far below forecasts for a +0.8% rise. Moreover, Philadelphia's Fed manufacturing index tumbled to -4.1% this month, below hopes for +14. So this has hurt the greenback!

Pound to Swiss franc

Sterling climbs the ladder versus the franc! The pound to Swiss franc interbank exchange rate has jumped by +0.5 cents last week, above 1.30.

The franc sank into the swamp last week, because the UK and the EU look closer to reaching a Brexit deal. This has weakened the franc, because this good news encourages financial markets to invest in "riskier" assets outside Switzerland. To be specific, if there's a Brexit deal, both the UK and EU economies could accelerate, so cutting demand for the traditional "safe haven" Swiss franc!

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate climbs! Sterling rose by +1.75 cents versus the Aussie last week, up to 1.8225.

Sterling strutted its stuff versus the AU dollar last week, first because a number of Chinese ports banned Australia's coal imports. In 2018, Australia imported some 7 million tonnes of coal to Australia, so this ban may weaken Australia's mining industry. It's thought that the Chinese ports banned Aussie coal, because Australia belongs to the 'Five Eyes' intelligence alliance with the USA.

Outlook

Furthermore, in my opinion, looking forward, the pound to Australian dollar interbank exchange rate may fly higher. This is because Australia's property market continues to drive in reverse. In particular, as home prices in major cities like Sydney and Melbourne fall, some developers are now starting to go bust. This is lifting the odds that Australia may enter its 1st recession in decades!

Pound to New Zealand dollar

Sterling moves on up against the kiwi! The pound to New Zealand dollar interbank exchange rate rocketed by +3.25 cents last week, to 1.9050.

The New Zealand dollar went wobbly at the knees last week, first because a fruit fly was found in Auckland. New Zealand is usually free of fruit flies, so if the insect spreads, it could do damage to New Zealand's vital agricultural industry. In response, the Ministry for Primary Industry has set up 7,500 traps, yet investors remain nervous, thereby putting a lid of the value of the kiwi dollar!

Outlook

Moreover, looking forward, the pound to New Zealand dollar could make further gains, in my opinion. This is because Reserve Bank of New Zealand (RBNZ) governor Geoff Bascand has suggested that the RBNZ may cut interest rates below their current 1.75%. The RBNZ may cut, as proposed higher bank capital requirements in New Zealand damp down demand for credit, and thus inflation.

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate jumps! Sterling rose by +0.75 cents versus the loonie last week, to 1.7150.

The Canadian dollar ran out of petrol by the roadside last week, first because Canada's retail sales excluding autos fell by -0.5% in December, below forecasts for -0.3%. This will weigh on Canada's GDP growth in Q4 2018. What's more, Bank of Canada governor Stephen Poloz warned that the path to lift interest rates back to their pre-crisis, neutral rate remains "highly uncertain".

Pound to Japanese yen

Sterling hops, skips and jumps higher versus the yen! The pound to Japanese yen interbank exchange rate rose by +0.82% last week, to 143.81.

The yen had 2 left feet last week, first because Japan's exports tumbled by -8.4% in January, the most in over 2 years. In particular, Japan's exports to China, its biggest trading partner, fell. This lifted Japan's trade balance to -37 trillion yen, a rare deficit. Moreover, the yen also weakened, as Japan's inflation fell to 0.2% in January, still miles from the Bank of Japan's official 2.0% target.

Pound to South African rand

Sterling stays put versus the rand! The pound to South African rand interbank exchange rate ended up where it began last week, at 18.18.

The rand went in circles last week, because there was mixed news over South Africa's economy. On the bright side, president Cyril Ramaphosa continues to pledge reforms, to spur investment and cut South Africa's unemployment rate. Yet less positively, South Africa's GDP is forecast to expand by just 4.5% in 2019, according to the latest Budget Review, -0.2% below the previous prediction.

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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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