GBP to NZD Flounders Near Two-Month-Low as New Zealand Dollar Gains on Fed Speculation

Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Near Worst Levels despite UK Services Data

UPDATE: Britain’s May services PMI from Markit beat forecasts, offsetting some of the contraction in manufacturing. However, Britain’s PMIs still showed that growth was modest at best last month.

This gave investors little reason to buy the Pound to New Zealand Dollar (GBP/NZD) exchange rate, which continued to trend near its worst levels since the beginning of April.

As Federal Reserve Chairman Jerome Powell indicated the Fed could consider cutting US interest rates in the foreseeable future, investors found the New Zealand Dollar (NZD) more appealing.

Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Flounders amid Lack of Pound Support

UPDATE: Investors have little reason to buy the Pound (GBP) today, as UK construction data showed a surprising contraction just as yesterday’s manufacturing data did.

As a result, the Pound to New Zealand Dollar has continued to trend relatively close to its lowest levels since April.

The Pound has only been able to hold above its worst levels due to US trade protectionism weighing on the New Zealand Dollar’s (NZD) gains, but Federal Reserve interest rate cut bets are keeping the ‘Kiwi’ relatively appealing.

US Rate Speculation Sends Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Lower

The Pound New Zealand Dollar (GBP/NZD) exchange rate approached its worst levels since March overnight and its potential for recovery is limited.

The pairing remains around a cent below the week’s opening levels, trading at NZ$1.9200.

While Brexit fears are keeping Pound Sterling (GBP) exchange rates under pressure, the New Zealand Dollar (NZD) has benefited from a shift in the US policy outlook.

Hints that the Fed could cut borrowing costs this year have boosted higher-risk currencies like the New Zealand Dollar.

According to ANZ FX/rates strategist Sandeep Parekh: “Weaker than expected US ISM data, coupled with Fed’s Bullard suggesting a cut to US rates may be on the cards, saw markets sell the USD and ratchet up the odds of a cut in the US.”

Pound (GBP) Exchange Rates Limp, UK Politics in Limbo

Pound Sterling (GBP) exchange rates have found little in the way of support so far this week, with the UK currency still struggling due to lingering concerns regarding domestic politics and the economic outlook.

Fears that a hard Brexit supporter could succeed UK Prime Minister Theresa May, as well as rising concerns that a no-deal Brexit is becoming the most likely potential outcome, are dominating the Pound outlook.

These fears have been the main cause of recent GBP weakness, but recent economic data has made Sterling even less appealing.

Yesterday saw the publication of the UK manufacturing PMI for May, which unexpectedly printed a contraction for the first time since the 2016 EU referendum.

Analysts predict there could be further weakness ahead for Britain’s factories as Brexit and global trade uncertainties continue to bite.

New Zealand Dollar (NZD) Exchange Rates Gain on Rising Federal Reserve Interest Rate Cut Expectations

Despite ongoing US trade war concerns,  New Zealand Dollar (NZD) exchange rates have been able to benefit from weakness in USD.

Persistent signs of weakness in US inflation and yesterday’s underwhelming US manufacturing PMI data from ISM have caused Fed interest rate cut expectations to rise.

St. Louis Fed President James Bullard even stated that a rate cut ‘may be warranted soon’ in comments overnight.

The possibility of lower interest rates in the US weakened USD and gave higher-risk currencies like the New Zealand Dollar (NZD) a leg up.

NZD found further support in this morning’s New Zealand terms of trade report, which came in slightly better than expected.

Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Traders Anticipate Political News

Amid a lack of notable New Zealand data over the remainder of the week, political developments and influences from rival currencies are most likely to drive movement in the Pound to New Zealand Dollar (GBP/NZD) exchange rate going forwards.

The Pound (GBP) remains unappealing amid uncertainties over the stability of the UK government and the Brexit process.

The New Zealand Dollar (NZD), on the other hand, will continue to be influenced by global factors like US trade rhetoric and Federal Reserve interest rate expectations.

If trade tensions diminish, the Pound to New Zealand Dollar (GBP/NZD) exchange rate could weaken further.

Josh Jeffery

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