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From our Currency Dealer Expert about Sterling vs Euro and other currency. 

  • The pound looked battered and bruised last month, as the UK economy took a turn for the worse following the vote for Brexit, and the Bank of England cut interest rates.
  • Sterling fell a peg against the euro in July, as the Eurozone weathered the vote for Brexit far better than the UK, and the ECB gave no sign that it will cut borrowing costs.
  • The pound has seen better days versus the dollar, as the USA created a mighty +255,000 jobs in July, again lifting the odds that the Federal Reserve will hike interest rates.
  • Sterling lost out versus the Australian dollar in July, as Australia created a mighty +38,400 new jobs in June, while GDP rose a solid +3.1 % in Q1.

Sterling overview

The pound edged lower versus a variety of currencies in July, such as the euro, Australian dollar and South African rand. Why? Well because, following the UK’s vote for to leave the EU in late June, the UK economy has taken a distinct turn for the worse. For instance, according to GfK, UK consumer confidence suffered its steepest drop since 1990 in July, due to Brexit uncertainty.

What’s more, business confidence has also fallen “dramatically” post-Brexit, according to the Institute for Chartered Accountants. With this in mind, although the UK expanded a solid +0.6% in Q2, while unemployment fell to a 10-year low of just 5.0%, the UK’s economic horizon now looks much cloudier.

Given this, it’s no surprise that the Bank of England has cut interest rates –0.25%, to a new all-time low of just 0.25%!

Euro

The pound fell –1 cent against the euro in July, to 1.18, while at some points falling as weak as 1.16. This is because the Eurozone is holding up well, broadly speaking, following the UK’s vote to leave the EU in late June. For instance, the Eurozone’s composite PMI, measuring economic output in services, manufacturing and construction, in fact rose slightly in July, in spite of the UK’s vote for Brexit.

The European Central Bank gave absolutely no hint that it would cut interest rates again last month, in spite of the UK’s exit from the EU. Given all this, the euro came out ahead!

US dollar

The pound buckles at the knees! Sterling fell –1 cent versus the US dollar across the course of July, to 1.31 +/- This is because, although the US economy is blowing hot and cold, it’s still looking perkier than the UK. To be specific, US GDP expanded just +1.2% in Q2, well below forecasts for +2.6%.  This suggests that America’s economic weakness, which started in Q1, has continued.

Yet on the other hand, the USA created a resounding +255,000 new jobs in July, telling us that America could shake off its blues, looking ahead, while lifting the odds that the Fed will hike interest rates!

Australian dollar

The pound dived –3 cents against the Australian dollar in July, to just 1.7450. This is because Australia’s economy is looking broadly sunny. To start with, Australia created a mighty +38,400 new full-time jobs in June. Moreover, Australia’s GDP rose +3.1% in Q1, the most in 3 years.

Even though the Reserve Bank of Australia has cut interest rates -0.25% to 1.25%, this still leaves borrowing costs far higher than most of the Western world. This makes Australia an attractive investment destination, thereby lifting the Aussie!

New Zealand dollar

The pound comes down a notch! Sterling fell –1 cent against the New Zealand dollar in July, to 1.8375. This is in spite of ambiguous economic data out of New Zealand. To start with, the Reserve Bank of New Zealand has imposed strict new mortgage restrictions, to prevent a housing bubble inflating further in Auckland. This should prevent New Zealand’s housing market from crashing, but could also weigh on economic growth.

Moreover, according to an FXStreet.com poll of economists, there’s a 98% chance that the RBNZ will cut interest rates this month! So, the kiwi could drop later in August.

Canadian dollar

 

Sterling charges ahead! The pound climbed +2 cents against the Canadian dollar last month, to 1.73. This is chiefly because Canada’s GDP fell –0.6% in May, its sharpest decline since the financial crisis. In particular, massive forest fires in Fort McMurray, Canada’s biggest oil refinery town, have pulled Canada’s economy into reverse. In Fort McMurray itself, 2,000 buildings have been destroyed, while tens of thousands of people have been evacuated.

Elsewhere meanwhile, the Bank of Canada has expressed continuing concern over ballooning house prices, in Toronto and Vancouver!

South African rand

The pound deflates versus the rand! Sterling dropped –4.7% against the South African rand in July, to just 18.42. This is because Democratic Alliance, South Africa’s pro-business opposition party, is ahead in the polls ahead of South Africa’s local elections this month.

Given this, investors are hopeful that Democratic Alliance will win in Pretoria, Johannesburg and Port Elizabeth, South Africa’s 3 biggest cities, and so trigger both democratic and economic renewal. What’s more, the rand has also climbed, because South Africa has overtaken Egypt to become Africa’s 2nd biggest economy again.

I hope this helps and should you have any queries then please do not hesitate to contact me or your Currency Dealer.

Source : Pure FX Market Commentary


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