Pound New Zealand Dollar (GBP/NZD) Exchange Rate Resumes Losses Thanks to UK Inflation Miss

Unexpected UK Inflation Weakness Drags Down Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate

A surprise slip in the UK consumer price index saw the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate resume its downtrend this morning.

Forecasts had pointed towards a steady level of inflationary pressure, catching investors off guard when the monthly consumer price index stagnated instead.

With the headline inflation rate easing from 1.5% to 1.3% the data seemed to add to the case for the Bank of England (BoE) to cut interest rates sooner rather than later.

Following on the heels of the latest comments from dovish BoE policymaker Michael Saunders this left Pound Sterling (GBP) on the back foot.

As Saunders warned that signs point towards ‘little or no growth’ within the UK economy at present the odds of an imminent BoE rate cut picked up further.

NZD Exchange Rates Hold Ground Ahead of US-China Trade Agreement

Ahead of the US and China signing their phase one trade agreement tonight the risk-sensitive New Zealand Dollar (NZD) found some limited support.

Although the move represents positive progress in the de-escalation of global trade tensions market anticipation for the event soon began to ease.

With the US pledging to leave its existing tariffs on Chinese produce in place until a phase two agreement materialises the general sense of market optimism quickly faded.

As investors doubt the likelihood of the two sides reaching an agreement in their next round of trade talks before the end of the year the pressure on the global economy looks set to linger.

Another negative reading from the New Zealand food price index also helped to limit the upside potential of NZD exchange rates this morning.

New Zealand Dollar Vulnerable to Weaker Card Spending Figures

Tonight’s New Zealand retail card spending figures may put additional pressure on the antipodean currency, meanwhile.

As investors anticipate a deterioration in consumer spending over the course of December worries over the outlook of the New Zealand economy look set to pick up.

Lower levels of consumer confidence and spending would point towards a weaker level of economic activity, putting NZD exchange rates under renewed pressure.

Unless consumers demonstrate greater resilience the New Zealand Dollar is likely to fall out of favour overnight.

UK Retail Sales Growth to Offer GBP Exchange Rate Boost

On the other hand, the Pound could find a temporary rallying point ahead of the weekend if the latest UK retail sales data proves positive.

With monthly sales expected to rebound from November’s -0.6% contraction with growth of 0.7% the GBP/NZD exchange rate may return to a positive footing.

As stronger levels of consumer spending have helped to shore up the economy in recent years a positive month of sales growth could reduce fears of a fourth quarter contraction.

However, another lacklustre month of sales may leave GBP exchange rates vulnerable to selling pressure as the case for imminent BoE action continues to build.

Louisa Heath

Contact Louisa Heath