Foreign Currency Market Update – GBP / NZD Update
The Pound Sterling New Zealand Dollar exchange rate slumped to its lowest level since last April during the latter stages of last week’s session.
The week began with another below par PMI survey of the UK economy; this time it was the construction sector which provided cause for concern, with the closely-monitored activity gauge revealing the weakest level of growth for the best part of two years. Tuesday’s equally weak PMI survey of the all-important services sector of the British economy was even more concerning, given that more than three quarters of domestic economic activity takes place in the combined tertiary industries.
This downbeat UK data set the tone for the steady downward move which followed for GBP NZD, but it was expectations regarding the future direction of monetary policy from two of the world’s leading central banks which increased the downward momentum for the pair.
Wednesday proved to be pivotal in this regard, with the US Federal Reserve publicly stating that it has no intention of raising its key interest rate until at least April. News emerged the same day that members of the European Central Bank’s governing council had heard, and were considering, plans for a €500bn all-out Quantitative Easing programme. The fact that the scheme would only involve purchases of investment grade gilts gives it a fighting chance of being approved by Germany and coming into being. The promise of a continuation of their ‘easy money’ policies from the Fed and the ECB favours the risk-fuelled New Zealand Dollar. If the ECB does opt to broaden the remit of its QE programme on 22nd January, then expect the GBP NZD exchange rate to track lower towards its 20-month low of 1.8861.
However, a stronger than anticipated showing from this morning’s UK inflation numbers could have the reverse effect, sending the GBP NZD exchange rate higher once more. Expectations are low for the keynote price rise number – anything above the consensus forecast of a year-on-year 0.7% showing would be Sterling-positive, potentially propelling GBP NZD up towards last year’s high of 1.9559.
Heads Up
Summary of major upcoming data releases that we think may move the market.