GBP/NZD Exchange Rate Tumbles on Disappointing Services PMI
UPDATE: The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate has fallen heavily today, as the UK’s latest services index capped off a poor run of PMI figures.
According to IHS Markit, the UK’s service sector only narrowly avoided stagnation at the start of the year as the PMI fell to just 50.1 in January.
Very worrying news on #UK #economy as #PMI indicates #UK #services activity stagnated in January. PMI down to 30-month low of 50.1 in January (51.2 in Dec) & second lowest level since December 2012. Compounding concern, new business contracted for 1st time since July 2016
— Howard Archer (@HowardArcherUK) February 5, 2019
As with the manufacturing and construction sectors, the slowdown in services last month appeared to be mostly driven by Brexit uncertainty, with a slump in new orders and a fall in employment spooking many GBP investors.
GBP/NZD Exchange Rate Weakened by Weaker UK Construction PMI
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate edged lower at the start of this week’s session after the UK’s latest construction PMI came in below expectations.
At the time of writing the GBP/NZD exchange rate is trading slightly below its opening rate, having given up some gains earlier in the session.
Pound Sterling (GBP) Exchange Rates Dented by Disappointing Construction Growth
The Pound (GBP) opened this week on the back foot, as markets were left disappointed by the UK’s latest Construction PMI.
According to data published by IHS Markit, the UK construction sector struggled at the start of 2019, with the latest index sliding from 52.8 to 50.6 in January, missing expectations of a modest decline to 52.4 and striking its lowest levels since March.
UK Construction PMI reveals slower growth, with Total Activity Index down to 50.6 (52.8 – Dec). Brexit uncertainty reportedly delayed decision-making on new projects, leading staff recruitment to slow. Read more: https://t.co/wOMsXmpCJ0 pic.twitter.com/fUFB5gU2og
— IHS Markit PMI™ (@IHSMarkitPMI) February 4, 2019
The slowdown appeared to be mostly driven by a contraction in commercial activity last month as clients became increasingly reluctant to sign-off on new projects in the face of growing Brexit uncertainty.
Max Jones, relationship director in Lloyds Bank Commercial Banking’s infrastructure and construction team said:
‘It’s clearly a pivotal year for the UK and Brexit is coming up more and more in conversations with construction clients, as they express concerns that projects are increasingly being affected by the uncertainty. It’s no surprise, then, that this appears to be feeding through to the PMI reading.’
Also of concern was a sharp slowdown in employment growth in the sector, with construction firms hiring at their slowest pace since July 2016.
Chinese Services PMI Helps New Zealand Dollar (NZD) to Steady
At the same time the New Zealand Dollar (NZD) found modest support on Monday following the release of China’s latest services PMI over the weekend.
NZD investors welcomed the resilience shown in the Chinese service sector last month, as it helped to ease concerns of a slowdown in one of New Zealand’s largest trading partners.
However this ultimately only resulted in a modest acceleration in risk appetite this morning, capping any upside in the ‘Kiwi’.
GBP/NZD Exchange Rate Forecast: UK Services PMI to Weaken Sterling?
Barring any notable developments in Brexit, movement in the Pound New Zealand Dollar (GBP/NZD) exchange rate on Tuesday is likely to be driven by the release of the UK’s latest services PMI.
This could result in some more notable headwinds for Sterling tomorrow if the dominant service sector also drops closer to the point of contraction, as many analysts suspect.
However potentially resulting in even more significant swings in GBP exchange rates in the latter half of the week will be the Bank of England’s latest rate decision, with heightened Brexit uncertainty potentially leading to a more dovish outlook from the bank.
Meanwhile NZD investors will be focused on the latest New Zealand employment figures, with the ‘Kiwi’ likely to stumble if domestic unemployment rose in the fourth quarter as forecast.