Confidence in the Pound weakened sharply in the wake of Theresa May’s appearance at the Conservative Party conference on Wednesday. Investors were not impressed by the Prime Minister’s speech, which raised fresh speculation over May’s tenure in Number 10.
The threat of another leadership contest weighed heavily on GBP exchange rates, adding to the sense of political uncertainty in the UK. As the persistent fragility of May’s position could force her to harden her stance on Brexit, in order to hold onto the support of the vocal Brexiteers, this does not bode well for the outlook of Sterling.
Further pressure was in store for the Pound ahead of the weekend as UK productivity was found to have dipped in the second quarter. This weaker showing highlighted the issue of wage stagnation and added downside risk to growth expectations in the coming months, indicating that the domestic economy is still struggling.
Political Jitters Limit New Zealand Dollar Appeal
Ongoing coalition talks in New Zealand have continued to weigh on the ‘Kiwi’, meanwhile, as markets continue to wait for some sense of increased political clarity. With the shape of the next government still very much unclear the appeal of the antipodean currency remains decidedly limited.
However, tonight’s card spending figures could still offer the New Zealand Dollar a potential rallying point. Any indication that consumer confidence improved in September may encourage greater optimism in the domestic outlook, in spite of the ongoing sense of political uncertainty.
The latest ANZ truckometer and domestic food prices index may also bolster the appeal of the ‘Kiwi’, with both figures offering fresh insight into local inflationary pressures. Signs that inflation is picking up could dent the GBP NZD exchange rate, giving the Reserve Bank of New Zealand (RBNZ) some cause for confidence.
Another strong reading from the New Zealand manufacturing PMI could equally shore up NZD exchange rates, with markets likely to greet signs of greater economic resilience. Even so, any deterioration in the sense of wider market risk appetite is likely to limit any New Zealand Dollar upside.
GBP Looks to Strengthen on Narrowed Trade Deficit
Political developments are also likely to dominate sentiment towards the Pound in the coming week, even though some of the worries over Theresa May’s future have already eased somewhat.
Unless the Tories can regain a greater sense of stability and market confidence then the GBP NZD exchange rate is likely to remain biased to the downside.
Tuesday’s raft of UK trade and production data could offer a greater degree of support to Sterling, though, if the economy demonstrates signs of strength. Any narrowing of August’s trade deficit may bolster the appeal of the Pound, indicating a smaller degree of vulnerability to any future deterioration in trade conditions.
However, if the NIESR gross domestic product estimate for the three months to September points towards weaker growth the GBP NZD exchange rate is likely to slump. Evidence of a fresh loss of economic momentum could dent the odds of any imminent Bank of England (BoE) interest rate hike, significantly reducing demand for Sterling.