Welcome to Pure FX’s monthly commentary of the interbank exchange rates for February 2019!
Sterling gained in January, as Parliament took on a larger role in Brexit. This is leading investors to hope that the UK retains ties with the EU.
The euro sank last month, as Germany's vast manufacturing sector contracted. Also, Italy unexpectedly sank into recession.
The US dollar lost out in January, as the Federal Reserve looks set to keep interest rates steady in 2019, even as America's economy stays strong.
The Aussie dollar strengthened last month, even though Australia's housing market continues to slow, and full-time jobs Down Under shrink.
Sterling hops, skips and jumps higher in January! The pound to euro and US dollar interbank exchange rates flew higher last month. That said, sterling lost out versus the Aussie and kiwi.
Why the pound's strength? Well, chiefly, because financial markets feel much more confident that the UK will exit the EU in an orderly way. In particular, Parliament has taken on a much larger role in Brexit. This is boosting investors' hopes that Britain will stay close to Europe after it leaves.
What's more, sterling has also strutted its stuff, as the UK's labour market remains in the pink. To be specific, UK wages rose by +3.4% in the 3 months to November. This is the most since the financial crisis.
That said, UK factories are stockpiling ahead of the possibility of a "No Deal" Brexit. So risks for the pound remain!
Pound to euro
The pound vs euro interbank exchange rate puts on a cape and flies! Sterling gained +2.82% against the euro in January 2019, up to 1.14.
Why? Well, first, because the Eurozone's economy started coughing and wheezing. For instance, Germany's factory sector, the economic motor of Europe, recently contracted.
What's more, Italy, the currency bloc's 3rd biggest economy, has entered recession.
Also, the European Central Bank (ECB) has cut its growth forecasts for the Eurozone, and may keep interest rates low for longer. So this has lifted the pound versus the euro!
Pound to US dollar
Sterling climbs versus the greenback! The pound to US dollar interbank exchange rate flew up by +2.49% in January, to 1.3055.
This is because, first, America's central bank, the Federal Reserve, held interest rates at 2.25%. The Fed also strongly hinted that borrowing costs would stay on pause for all of 2019.
Moreover, President Donald Trump re-opened the Federal government after over a month's stalemate. This gave investors confidence to buy assets outside the USA, weighing on the buck!
That said, the USA created a bumper 304k jobs in January. So America's economy remains fighting fit.
Pound to Australian dollar
The pound to Australian dollar interbank exchange rate stands still! Sterling ended where it began versus the Aussie in January, between 1.8050-1.81. That said, in my opinion, the pound to Australian dollar rate may strengthen, looking ahead.
This is because, first, Australia's full-time employment fell by -3,000 in December. This bodes ill for Australia's job market.
What's more, building permits Down Under crashed by -22.5% in December compared to a year ago. This tells us that Australia's housing market is sinking fast. So this may lift the pound versus Australian dollar rate!
Pound to New Zealand dollar
The pound to New Zealand dollar interbank exchange rate stays put! Sterling vs the kiwi went in a circle in January 2019, to 1.8950. That said, the New Zealand dollar may soon strengthen, in my opinion.
This is because, first, New Zealand's inflation reached +1.9% in Q4, ahead of forecasts for a fall to +1.8%. This cuts the odds that the Reserve Bank of New Zealand will reduce interest rates, below their current 1.75%.
What's more, New Zealand business confidence rose in Q4, said NZIER, up to -17% from -30% in Q3. So this may boost the New Zealand versus the pound soon!
Pound to Canadian dollar
Sterling loses its footing versus the loonie! The pound to Canadian dollar interbank exchange rate sank by -1.45% in January, to 1.7113.
This is because, first, Canada's inflation rose by +0.3% in December, to 2.0%, above forecasts. This is bang on the Bank of Canada's target. So this lifts the odds that Canada's central bank will hike interest rates again sooner.
What's more, the Canadian dollar to pound rate also rose, as the price of oil, Canada's biggest export, has risen by +2.7% recently. Oil prices are being buoyed by sanctions on Venezuela. So this has lifted the Canadian dollar versus the pound rate!