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Sterling Rises, as UK Looks Less Likely to Crash Out of EU

Welcome to Pure FX’s market commentary of the interbank exchange rates for March 2019!

  1. Sterling gained against many major currencies in February, as the UK looks less likely to crash out of the EU without a deal.
  2. The euro weakened somewhat last month, as the Eurozone's 3 largest economies - Germany, France and Italy - all slowed notably.
  3. The US dollar declined a few cents in February, as Fed chairman Jerome Powell said that he'll be "patient" about lifting interest rates further.
  4. The Australian dollar lost value last month, as uncertainties remain over the USA and China's trade war, which bodes ill for Australia too.

Sterling overview

Sterling strengthens against most major currencies! The pound interbank exchange rate rose against the euro, US dollar and Australian dollar in February. This is primarily because it now looks much less likely that the UK will crash out of the EU with a 'No Deal' this month.

In particular, UK prime minister Theresa May has offered MPs votes both on whether to extend the UK's Article 50 negotiating window, and whether to rule out a 'No Deal'. The financial markets think this makes it likelier that the UK will retain close ties to Europe after Brexit. This may benefit Britain's economy, and so sterling too.

Also, the pound has gained, as the UK economy remains admirably steadfast, even with the Brexit uncertainty. For instance, UK unemployment remains at its lowest since the mid-1970s, while UK wages are rising at the fastest pace in a decade.

All this bodes for a brighter future for the UK in the coming months, thereby bolstering the value of sterling.

Pound to euro

Sterling gains in value versus the common currency! The pound to euro interbank exchange rate climbed by +2 cents last month, to close to 1.1650. Why? Well, because the Eurozone economy continues to lose momentum, says the latest data.

To start with, Germany's GDP stagnated over October to December, thus narrowly avoiding recession. Meanwhile, Italy is already contracting, while France continues to struggle with its 'yellow vest' protestors.

At the same time, Eurozone inflation has fallen. This puts less pressure on the European Central Bank to hike interest rates above 0.0%.

Pound to US dollar

The pound to US dollar interbank exchange rate increases in value! Sterling rose by +2.75 cents versus the US dollar in February, to 1.3350. This is because, first, US Federal Reserve chairman Jerome Powell has said that he'll be "patient" about lifting US interest rates further.

Speaking to Congress, Mr. Powell highlighted that there are "crosscurrents and conflicting signals" about America's economy, thus encouraging the Fed to keep borrowing costs at 2.25-2.5%.

Also, according to a NABE poll of economists, there's a 75% chance that the USA will enter recession by 2021.

Pound to Australian dollar

Sterling rises considerably versus the Aussie! The pound to Australian dollar interbank exchange rate climbed by +6.5 cents last month, to 1.8650, at one point touching a 21-month high. Why? Well, first, because there’s renewed concern over America’s trade war with China.

In particular, US Trade Representative Robert Lighthizer has told Congress that "much still needs to be done” to reach an agreement. Australia trades closely with both the USA and China, so this may slow Australia’s economy.

Also, Australia’s housing market continues to go in reverse, as Chinese investors pull out.

Pound to New Zealand dollar

The pound to New Zealand dollar interbank exchange rate climbs by a noteworthy amount! Sterling flew up by +5 cents in February, to 1.95, its strongest since early November last year.

Why? Well, first, because a fruit fly was found in Auckland. New Zealand is a fruit fly-free zone, so if the insect spreads, it could damage New Zealand's agriculture industry, like the kiwi fruit harvest.

What's more, the NZ dollar also depreciated in value last month, as New Zealand's trade balance fell to a -NZ$900 million deficit in January. This is because New Zealand's exports tumbled, while imports ballooned.

Pound to Canadian dollar

Sterling increases in value versus the loonie! The pound to Canadian dollar interbank exchange rate jumped by +2.75 cents in February, to 1.74. This is because, first, Canada's inflation eased by -0.1% in January, to 1.4%.

This is well below December's 2.0%, and far below the Bank of Canada's (BoC) goal of 2.0%. Given this, BoC governor Stephen Poloz now looks less likely to lift interest rates above 1.75% in the near future.

Moreover, the CA dollar also dropped last month, as Canada's current account deficit ballooned to -CA$15.48 billion in Q4. This bodes ill for Canada's public finances.

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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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