Pound Sterling Update: GBP/NZD Exchange Rate Up 0.3% on Day of Brexit Drama

High Uncertainty Surrounding UK Government Fails to Stop GBP/NZD Exchange Rate Rise

UPDATE: The Pound (GBP) has risen by 0.3% against the New Zealand Dollar (NZD) this afternoon, despite growing uncertainty about the UK’s Brexit approach.

Earlier, Pound Sterling appreciated on signs that the UK could be looking at a potential ‘soft Brexit.’

Since then, however, the focus has shifted onto Foreign Secretary Boris Johnson, who some believe is poised to resign his position.

Mr Johnson was a notable voice on the ‘leave’ side of the EU Referendum in 2016 and there is speculation that he could quit in opposition to the PM’s Brexit plans.

This would throw the Cabinet into disarray, but the Pound’s continued resilience suggests that currency traders are discounting this potential outcome, for now at least.

Brexit Secretary Resignation Boosts Pound Sterling to New Zealand Dollar (GBP/NZD) Exchange Rate

The Pound (GBP) has risen by 0.3% against the New Zealand Dollar (NZD) today, rising to an exchange rate of NZ$1.94 on the interbank rate.

This Sterling advance comes despite the surprising news that Brexit Secretary David Davis has resigned.

Mr Davis appeared to be satisfied by last Friday’s Brexit meeting headed by Prime Minister Theresa May, but has since resigned because of irreconcilable differences.

A former housing minister, Dominic Raab, has been named as Mr Davis’ successor and the Pound has ended up appreciating on hopes that the UK will ultimately get a ‘soft Brexit’ deal.

This would be less economically turbulent than a ‘hard Brexit’ scenario and Mr Davis has confirmed that he will not seek to undermine the PM’s position.

New Zealand Dollar to Pound (NZD/GBP) Losses Triggered by Opposition’s Spending Complaint

The New Zealand Dollar (NZD) has fallen against the Pound (GBP) and most regular peers today, on a slow day for NZ economic data.

The latest news has been disappointing for the most part, with opposition MPs accusing the current NZ government of excessive spending since it was formed.

The coalition leadership is being labelled as ‘irresponsible’ by National Party leader Simon Bridges, who says:

‘[Finance Minister] Grant Robertson’s loose and untargeted spending promises means the Government is planning to increase its borrowing by NZ$17 billion over the next four years.

‘At the same time economic uncertainty is increasing internationally, this Government is taking the opposite approach – spending up large now and hoping that the next rainy day doesn’t happen under its watch.’

Business confidence levels in New Zealand have been low since the change of government in 2017 and this incident only further reflects high national uncertainty.

GBP/NZD Forecast: Can Pound Sterling Rise Further on Positive UK Output Data?

This week, Pound/New Zealand Dollar (GBP/NZD) exchange rate movement may come on UK production and GDP figures on Tuesday and later speeches from Bank of England (BoE) officials.

In the former case, today’s GBP/NZD exchange rate gains could be extended tomorrow morning if industrial, manufacturing and construction output stats show growth.

Economists are predicting improving levels of output across the board for May’s readings, which could further support Pound Sterling gains.

Further ahead, BoE Governor Mark Carney will be speaking on Wednesday, followed by fellow policymaker Jon Cunliffe on Friday.

If both men back a potential interest rate hike as soon as August, then the GBP/NZD exchange rate could rise sharply.

Since June’s UK PMI data beat forecasts, there has been growing speculation that an August interest rate hike could be highly likely.

The week’s NZ economic news will be less high-impact, consisting of a manufacturing PMI reading coming out on Thursday evening.

Current expectations are for the figure to show rising sector activity during June, which may lead to late-week NZD/GBP exchange rate gains before Friday’s second BoE speech.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon