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Sterling Weakens Versus Euro and US Dollar, on Brexit Uncertainty

Welcome to Pure FX’s weekly summary plus outlook of the foreign exchange rate.

This tells you what’s affected the exchange rates in the past week, and what may happen next, for your money transfer!

Pound to euro

Sterling sinks versus the common currency! The pound to euro exchange rate fell by -0.25 cents this week, to 1.11.

The pound weakened this week, chiefly because of Brexit. For instance, the Bank of England warned at its latest interest rate decision that "Brexit uncertainties have intensified considerably since the [BoE's] last meeting." In particular, the risk that the UK crashes out of the EU next March with a 'No Deal' is weighing on business confidence and hiring. So this has dragged down the pound!

Meanwhile, the euro gained strength this week, first because Italy resolved its debt dispute with the EU. Rome's budget deficit for 2019 will now reach 2.04%, down from the originally proposed 2.4%, and in line with Brussels' rules. As a result, a stand-off between Italy's populist government and Brussels' bureaucrats has been avoided, lifting sentiment in the Eurozone, and the euro also!

Pound to US dollar

Sterling hops, skips and jumps higher versus the buck! The pound to US dollar exchange rate rose by +0.75 cents this week, to 1.2650.

The greenback lost out this week, because though the US Federal Reserve lifted interest rates to 2.5%, the Fed signalled that it will hike just 2 times in 2019, below previous hopes for 3 hikes. This will make investing in US assets less profitable than previously hoped for, thereby cutting demand for the buck! What's more, lower interest rates point to a less resilient American economy too.

Outlook

Looking forward meanwhile, sterling could continue to climb versus the greenback. This is because, first, it's feared that US economic growth has peaked, following US president Donald Trump's tax cuts last year. In addition, Mr. Trump is threatening not to fund the US government, unless Congress agrees to pay billions of dollars for Mr. Trump's wall at Mexico's border. Hence a weaker USD!

Pound to Swiss franc

Sterling holds its ground versus the franc! The pound to Swiss franc exchange rate stuck around 1.2550 this week.

The franc flew higher this week, first because the global stock market tumbled. This lifted demand for the franc, as Switzerland is a safe, stable economy, and so a haven in times of economic turmoil. On the other hand, the franc fell though, as interest rates at the Swiss National Bank (SNB) remain at -0.75%. This is the lowest in the developed world, weighing on demand for the franc!

Pound to Australian dollar

Sterling rockets versus the Aussie! The pound to Australian dollar exchange rate jumped by +2.75 cents this week, to 1.78.

The Australian dollar tripped over its shoelaces this week, because there are fears over Australia's housing market. In particular, Australia's property prices may endure a "hard landing", as Australians' wages haven't risen quickly in recent years. This may trigger "the first Australian recession in a generation", according to Saxo Bank's John Hardy, thereby hurting the Australian dollar!

Pound to New Zealand dollar

The pound to New Zealand dollar exchange rate moves on up! Sterling gained +2 cents versus the kiwi this week, to 1.8750.

The NZ dollar lost its footing this week, because New Zealand's economy expanded by just +0.3% between July and September, half financial market forecasts for +0.6%. This is because, in particular, there was weaker construction activity in The Land of Middle Earth, while food manufacturing output fell. Also, business confidence is "still at worryingly low levels", says ASB chief economist Nick Tuffley!

Pound to Canadian dollar

Sterling jumps for joy versus the loonie! The pound to Canadian dollar exchange rate rose by +2.75 cents this week, to 1.71.

The CA dollar sunk to the bottom of the ocean this week, because the price of oil, Canada's biggest export, declined. To be specific, the price of a barrel of crude dropped almost -8% this week, to just $46 a barrel. This is because the USA's shale oil producers look set to lift supply, even as the world's demand for oil falls. This makes Canada's oil export less profitable, thus hurting the loonie!

Outlook

What's more, looking ahead, the pound to Canadian dollar exchange may continue to rise. This is because, first, Canada's inflation flatlined -0.7% in November, to just 1.7%, below the Bank of Canada's (BoC) target. This may convince the BoC to keep interest rates on hold. Also, Canada's retail sales rose just +0.3% in October, below hopes for a +0.4% gain, which will hurt Canada’s GDP!

Pound to South African rand

The pound to South African rand exchange rate rises! Sterling rose by +0.49% against the rand this week, to 18.18.

The rand lost out this week, chiefly because global stock markets have tumbled this week, dragged down by fears that America's economy may soon slow, plus fears over trade wars. This has weakened the rand, because South Africa is an open, commodity exports-orientated economy, and is deeply connected to global ups and downs. So when the world sneezes, the rand catches a cold!

Pound to Japanese yen

Sterling weakens versus the Japanese yen! The pound to yen exchange rate fell by -1.55% this week, to 140.53.

The yen took poll position this week, chiefly because of global economic uncertainties. To start with, the US Federal Reserve signalled that it intends to hike interest rates 2 more times in 2019, up to 3.0%, when financial markets think interest rates are high enough now. This fear of higher interest rates is weighing on the global stock market, thus boosting the Japanese yen as a safe haven!

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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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