The Pound is falling from a six-week high against the New Zealand Dollar today, with a drop of -0.3% taking the GBP NZD exchange rate down below 1.78.
Focus on Approaching Brexit Talks Weighs on Pound, but GBP/NZD Climbs
Weakness in the New Zealand Dollar was largely to thank for the GBP/NZD gains witnessed over the past week, as the Pound was also struggling with weak appetite.
Markets were too distracted by the news that Brexit talks would resume this week, with fears over the UK’s ability to make positive headway with the European Union continuing to keep Sterling muted.
Even positive domestic data last week didn’t give the Pound much of a boost. Public borrowing figures showed the first July surplus since 2002, yet markets were worried to see that the deficit for the first four months of this financial year is already around £2 billion higher than the previous year’s.
GBP NZD Slips Lower; Markets Uneasy ahead of Federal Reserve Jackson Hole Speeches
All eyes were on the US Federal Reserve’s Jackson Hole symposium last week, which kept appetite for the New Zealand Dollar soft.
Speeches from European Central Bank (ECB) President Mario Draghi and Federal Reserve Chair Janet Yellen held the potential to drastically alter the outlook of monetary policy in the Eurozone and US, which could have significantly changed the appeal of safe and risky currencies.
Domestic developments added to the gloom surrounding the ‘Kiwi’ on Wednesday, after the release of the government’s latest Economic and Fiscal Update (EFU). Although the Treasury increased its budget forecast to more-than-double previous estimates, GDP growth projections have been cut significantly.
The New Zealand economy is expected to have grown by 2.6% – down from earlier year-on-year estimates of 3.2% – while GDP to June 2018 is anticipated to clock in at 3.5% rather than the 3.7% predicted earlier.
Trade data late on Wednesday failed to support NZD on Thursday, despite showing a smaller-than-expected drop in the trade balance. Economists had forecast a deficit of –NZ$200 million, but New Zealand instead managed to record an NZ$85 million surplus.
However, with Jackson Hole now just around the corner, markets were in no mood to buy into the ‘Kiwi’. In fact, with the New Zealand Dollar trending as strongly as it was already, even a pessimistic speech from Janet Yellen, which pushed odds of another interest rate hike this year down lower, failed to propel NZD/GBP higher.
Pound Tumbles as Jean-Claude Juncker Claims UK Brexit Papers Unsatisfactory
European Commission President Jean-Claude Juncker has today stated that the UK’s ‘positioning’ papers are unsatisfactory.
Juncker stated; ‘I did read, with the requisite attention, all the papers produced by Her Majesty’s Government and none of those is actually satisfactory. So there is still an enormous amount of issues which remain to be settled.’
The UK government has been vague on its approach to Brexit for some time, with the five positioning papers released in the past few days easing market concerns after finally providing some clarity on the Cabinet’s approach to negotiations.
For Juncker to have shot down those hopes so quickly has therefore caused the GBP/NZD exchange rate to tank, with the pairing tumbling -0.4%.
Focus on Overseas Data Could Create GBP/NZD Turbulence
A speech from Bank of England (BoE) policymaker Michael Saunders on Thursday could cause volatility for the Pound, given that he is one of the most optimistic members of the Monetary Policy Committee (MPC).
While forecasts are for little real change, Markit’s Friday manufacturing PMI release will be closely watched, as it will help to solidify the emerging picture of the UK’s third-quarter economic performance.
Overseas data is likely to be the biggest driver of the New Zealand Dollar this week, given that there is little on the domestic data calendar. Every day holds some very important US data that could affect rate hike odds and therefore move the ‘Kiwi’. Additionally, Thursday sees the release of the Chinese manufacturing PMI, which could have a significant bearing on the New Zealand trade outlook.