Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Boost Forecast on Hawkish Fed Outlook

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Struggles Ahead of Fed Meeting

As markets braced for tonight’s Federal Open Market Committee (FOMC) policy announcement the Pound to New Zealand Dollar (GBP/NZD) exchange rate remained under pressure.

However, the appeal of the New Zealand Dollar (NZD) could decline sharply if Fed policymakers prove more hawkish than forecast.

If the Fed looks on track to pursue a faster pace of monetary tightening over the course of the coming months this could dent NZD exchange rates overnight.

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Fluctuates on UK Construction Rebound

The UK construction PMI saw a solid rebound on the month in April, helping to limit the weakness of the Pound to New Zealand Dollar (GBP/NZD) exchange rate on Wednesday morning. Currently, one Pound will buy NZ$1.94 – which is almost unmoved on the day.

After the contraction seen in March the UK construction sector returned to a solid state of growth, with the PMI jumping from 47 to 52.5.

However, as the construction sector only accounts for a small fraction of UK economic activity this positive showing was not enough to drive Pound (GBP) exchange rates significantly higher.

Markets remain concerned that the underlying health of the UK economy is still weaker than previously thought.

With the odds of an imminent Bank of England (BoE) interest rate hike now in single digits the appeal of the Pound is likely to remain rather muted over the coming weeks.

Underwhelming New Zealand Jobs Data Limits GBP/NZD Exchange Rate Downside

The Pound to New Zealand Dollar (GBP/NZD) exchange rate found some support on the back of the first quarter New Zealand labour market data.

While the unemployment rate held steady at 4.4%, in line with market forecasts, this was accompanied by a surprise decline in the participation rate.

This indicates that a smaller number of New Zealanders are now economically active, undermining confidence in the domestic outlook.

Even though average hourly earnings surged higher on the quarter, rising 1.1% as opposed to expectations of a 0.5% rise, this was not enough to keep New Zealand Dollar (NZD) exchange rates on a stronger footing.

However, as the US Dollar (USD) faltered NZD exchange rates were able to find some support on Wednesday afternoon.

Solid UK Services PMI Forecast to Boost Pound New Zealand Dollar (GBP/NZD) Exchange Rate

A rallying point could be in store for the Pound to New Zealand Dollar (GBP/NZD) exchange rate, however, if April’s UK services PMI proves more positive in nature.

Forecasts point towards a solid uptick in sector expansion on the month, with the index expected to strengthen from 51.7 to 53.5.

An improvement here would give investors incentive to buy back into the softened Pound, given that the service sector remains the key driving force of the UK economy.

While a more resilient services PMI reading would help to allay investor concerns over the economic outlook, it would be unlikely to be enough to materially alter the odds of a May BoE rate hike.

As a result, the upside potential of the GBP/NZD exchange rate may still prove rather limited in the short term.

GBP/NZD Exchange Rate Gains Forecast on Tightening US Labour Market

April’s ANZ commodity price index could provoke additional jitters for the Pound to New Zealand Dollar (GBP/NZD) exchange rate overnight.

If price pressures show fresh signs of picking up this could boost confidence in the New Zealand economy, especially as global trade tensions have shown signs of easing in recent days.

However, a bullish US Dollar may still put pressure on NZD exchange rates ahead of the weekend if Friday’s US employment data strengthens in line with forecasts.

A further tightening of the US labour market would give the Federal Reserve additional cause for confidence, boosting the Pound to New Zealand Dollar (GBP/NZD) exchange rate as market risk appetite eases.

Hannah Wilson

Contact Hannah Wilson