Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Losses Limited as UK-EU Brexit Deal Could be Finalised Soon
UPDATE: It has been confirmed that UK Prime Minister Theresa May will travel to Brussels in order to discuss the finalisation of the UK-EU Brexit deal with European Commission President Jean-Claude Juncker.
The meeting would prepare parties for this upcoming Sunday, when an emergency UK-EU summit will be held to confirm the UK-EU Brexit deal.
Hopes that progress was still being made and that UK Prime Minister Theresa May would survive a potential leadership challenge helped the Pound (GBP) to avoid further losses.
However, concerns that any Brexit deal could be blocked from law by Parliament kept the Pound to New Zealand Dollar (GBP/NZD) exchange rate from recovering notably.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Slides despite Market Risk-Aversion
Despite news that trade tensions between the US and China remained elevated, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate slumped on Tuesday morning.
Following last week’s significant plunge of around 5 cents, from NZ$1.92 to near a new 2018 low of NZ$1.86, GBP/NZD saw a brief recovery attempt yesterday.
GBP/NZD reached around a cent and a half higher on Monday, but at the time of writing this morning had shed around half of those gains.
Investors were hesitant to buy the Pound (GBP), as while UK Prime Minister Theresa May appeared to avoid a leadership challenge for now her Brexit plan still faces significant obstacles.
Brexit uncertainties has left Sterling looking unappealing, making it easier for the New Zealand Dollar (NZD) to recover despite some market risk-aversion.
Pound (GBP) Exchange Rate Demand Dampened as Brexit Obstacles Mount
Last week’s Brexit developments were significant, as the broad domestic objection to the currently planned UK-EU deal left markets concerned about the stability of Theresa May’s government.
Several Cabinet members resigned once the UK-EU deal was reached, indicating to investors that even if the deal is confirmed, it could still be easily be blocked from law by Parliament.
On Monday, Theresa May indicated that the chances of the Brexit transition period being extended were unlikely, which kept Sterling (GBP) under pressure.
On top of this, Northern Ireland’s Democratic Unionist Party (DUP) has indicated that it will not support May’s Brexit plan.
The DUP had been propping up the Prime Minister’s minority government. According to BBC Political Editor Laura Kuenssberg:
‘Remember, there’s a really straightforward reason why this matters so much. Theresa May does not have enough votes on her own to pass the Brexit deal.
The partnership with the DUP was set up to try to make sure she could. If it collapses completely then her central task becomes yet more seemingly impossible, even if those 48 letters never come.’
New Zealand Dollar (NZD) Exchange Rates Benefit from Rival Weakness
The New Zealand Dollar (NZD) has been one of the more appealing trade-correlated currencies in recent weeks, thanks to some stronger-than-anticipated data and a more optimistic outlook from the Reserve Bank of New Zealand (RBNZ).
On Monday, October services PMI also came in strongly. The previous figure was revised higher from 53.9 to 54.2 and the October figure printed at 55.4.
This continued to offer support to the New Zealand Dollar this week so far, despite global trade factors making investors hesitant to buy risk-correlated currencies.
Trade tensions between the US and China have flared up again since the weekend, making it difficult for the New Zealand Dollar to capitalise on Sterling’s weakness.
US Vice President Mike Pence asserted that controversial US tariffs on Chinese goods would remain in place until China changed its tone on how it handled global trade.
The continued disagreements between the two giant trading nations weighed on any hopes that a fresh round of US-China negotiations could lead to some de-escalation in tensions.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Traders Anticipate Geopolitical Developments
Amid a lack of major UK or New Zealand ecostats due for publication in the coming sessions, the Pound to New Zealand Dollar (GBP/NZD) exchange rate is more likely to be influenced by political and geopolitical developments.
Of course, the biggest focus after last week’s UK political turmoil will likely continue to be Brexit developments. There are only five days until a planned UK-EU summit to finalise the Brexit deal.
If anything causes that summit to be delayed or fail, the Pound (GBP) could plummet. Sterling may strengthen if the perceived chances of a ‘no-deal’ Brexit lessen though.
As for the New Zealand Dollar (NZD), it is likely to remain under pressure if US-China trade jitters worsen.
If other factors that influence risk-sentiment improve though, such as commodity prices, the Pound to New Zealand Dollar (GBP/NZD) exchange rate could be kept nearer its lowest levels.