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Sterling vs Euro Rate Stays Steady, as UK and Eurozone Slow

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

Pound to euro

Sterling stays still versus the euro! The pound to euro interbank exchange rate held close to 1.1425 last week.

The pound held its ground last week, first because the UK services sector unexpectedly slowed. UK services activity hit just 50.1 in January, according to IHS Markit, just a whisker above the 50.0 figure that signals growth. In particular, businesses said that Brexit uncertainty was weighing on growth. As a result, the Bank of England unanimously held interest rates at 0.75% last week too.

Meanwhile, the euro was on ice last week, as the Eurozone's economic growth outlook has eased. To start with, Germany's industrial production fell by -0.4% in December, well below forecasts for +0.7%. What's more, the European Commission (EC) has slashed the currency bloc's GDP forecast for this year by -0.6%, to just 1.3%. So these weaker figures are weighing down the euro!

Pound to US dollar

The pound to US dollar interbank exchange rate tumbles! Sterling fell -1.75 cents versus the US dollar last week, to 1.2925.

The greenback strengthened last week, first because America's central bank, the Federal Reserve, gave a positive assessment of the US economy. In particular, Fed chairman Jerome Powell said that "unemployment is low, prices are near 2% inflation, so we’re in a good place now." Also, the buck climbed, as US president Trump delayed his meeting with Chinese president Xi Jinping, to resolve their trade war.

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate stumbles! Sterling fell -0.75 cents versus the Swissie last week, to 1.2950.

The franc gained last week, first because Switzerland's unemployment rate held steady at 2.4% in January, as forecast. This is among the lowest jobless rates in the world, and points to Swiss economic strength. In addition, the franc climbed, as US president Trump's announcement that he'll delay his meeting with Xi Jinping prompted investors to seek safe haven currencies, like the franc.

Pound to Australian dollar

Sterling surges versus the Aussie! The pound to Australian dollar interbank exchange rate jumped by +1.75 cents last week, to 1.8250.

The Australian dollar slammed on the brakes last week, first because Australia's trade balance caused concern. Australia's trade surplus jumped to AU$3,681 million in December, the 2nd-highest in history. This though was caused by a -6.0% fall in imports, pointing to falling demand in Australia. Also, exports fell by -2.0% too. This signals weaker growth Down Under, weighing on the Aussie!

Outlook

What's more, looking ahead, in my opinion sterling could climb further versus the Australian dollar. This is because the Reserve Bank of Australia (RBA) again held interest rates at 1.5% last week. To be specific, to explain its decision, Australia's central bank highlighted the wobbly housing market, plus stagnant wage growth for Australians. So this may weigh further on the Australian dollar!

Pound to New Zealand dollar

Sterling jumps for joy versus the kiwi! The pound to New Zealand dollar interbank exchange rate rose by +1.75 cents last week, to 1.9150.

The NZ dollar got lost in the woods last week, as New Zealand's job market unexpectedly creaked. To be specific, kiwi unemployment rose by +0.3% between October and December last year, to 4.0%. Moreover, New Zealand's labour force participation rate, telling us how many kiwis are actively in the job market, fell by -0.2%, to 70.9%. So this has pushed down the value of the NZ dollar!

Outlook

Furthermore, looking forward, sterling could fly higher versus the New Zealand dollar, in my opinion. This is because, with New Zealand's labour market up against the ropes, the Reserve Bank of New Zealand (RBNZ) is now likelier to cut interest rates below 1.75%. This would make it cheaper to borrow in New Zealand, yet make investing less profitable too, thus hurting demand for the NZD!

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate strengthens! Sterling soared +0.5 cents versus the loonie last week, to 1.7175.

The Canadian dollar weakened last week, first because the price of oil, Canada's biggest export, fell. US crude oil futures have fallen by -2.5% in the last week, to just $52.64 a barrel. As a result, Canada's oil refineries make less money from exporting the black gold. Also, the CA dollar has lost out, as America's trade war is slowing Canada's business investment, says the Bank of Canada.

Outlook

In addition, looking forward, in my opinion the pound to Canadian dollar interbank exchange rate may continue to climb. This is because, first, Canada's unemployment rate unexpectedly climbed by +0.2% in January, to 5.8%. What's more, Canada's housing market is slowing, while it's thought that consumer spending hit its lowest since 2009 last year. So this could weigh down the CA dollar!

Pound to Japanese yen

Sterling steps backwards versus the yen! The pound to Japanese yen interbank exchange rate sank by -0.71% last week, to 142.28.

The yen was crowned last week, because of continuing optimism about Japan's economy. In particular, it's thought that Japan's economy has now grown for 74 consecutive months, since December 2012. If so, this would be Japan's longest post-war expansion, buoyed by "solid domestic demand and a tightening labour market", according to Japan's official Cabinet Office statistics.

Pound to South African rand

Sterling leaps versus the rand! The pound to South African rand interbank exchange rate climbed by +0.97% last week, to 17.61.

The rand lost out last week, as South Africa's president Cyril Ramaphosa announced price hikes and job cuts at national energy utility Eskom, at his State of the Nation Address (SONA). This will help revive Eskom, yet will mean pricier electricity and higher unemployment for South Africans in the short term. This disappointed international investors, who in turn sold the South African rand!

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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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