Pound New Zealand Dollar (GBP/NZD) Exchange Rate Slides as UK Construction PMI Plunges to Historic Low

Unprecedented Drop in UK Construction Drives Pound New Zealand Dollar (GBP/NZD) Exchange Rate Lower

An unexpectedly dramatic decline in April’s UK construction PMI saw the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate slump today.

Investors were caught off guard as the PMI plunged from 39.3 to just 8.2 on the month, signalling a historic low for the sector.

While markets had anticipated a marked deterioration in construction sector activity the extent of the slowdown drove Pound Sterling (GBP) lower across the board.

Although construction only accounts for a fraction of the UK gross domestic product, and companies have already made moves towards reopening sites in the weeks ahead, GBP exchange rates still weakened on the back of the data.

Coupled with the disappointing nature of the corresponding manufacturing and services PMIs this weak showing suggests that the UK remains on course for a major contraction in the second quarter.

Better-than-Forecast Unemployment Rate Boosts New Zealand Dollar

Support for the New Zealand Dollar (NZD), meanwhile, picked up on the back of a better-than-expected first quarter unemployment rate.

Even though forecasts had pointed towards an unemployment rate of 4.4% the figure instead clocked in at 4.2%, suggesting a smaller hit from the recent lockdown.

However, as the data ultimately does little to capture the current state of the New Zealand economy its initial impact soon began to fade.

Nevertheless a lingering sense of market optimism still helped to keep a floor under the risk-sensitive New Zealand Dollar today, putting further pressure on the GBP/NZD exchange rate.

GBP/NZD Exchange Rate Braces for Bank of England Policy Announcement

The GBP/NZD exchange rate looks set to remain on the back foot as investors brace for tomorrow’s Bank of England (BoE) policy announcement.

Even though no change in monetary policy appears likely at this juncture the nature of policymakers’ commentary could still provoke fresh jitters for the Pound.

If the BoE demonstrates any signs of cautious optimism over the outlook of the UK economy, and its ability to bounce back, the mood towards the Pound could improve sharply.

On the other hand, an indication that the central bank remains concerned over the impending recession may leave the GBP/NZD exchange rate vulnerable to a fresh bout of selling pressure.

Additional Pound Losses Forecast on Continued Decline in UK Consumer Confidence

Investors could find further reason to sell out of the Pound ahead of the weekend if May’s GfK consumer confidence index falls deeper into negative territory.

As long as consumer sentiment continues to sour the chances of a sharper economic rebound will diminish, given the major impact of consumer spending on the UK economy.

Until worries over the Covid-19 crisis start to see a sustained easing GBP exchange rates may struggle to find any particular traction.

With markets keen to assess the extent of the imminent easing in lockdown measures promised by the government the Pound looks set to maintain a volatile outlook in the days ahead.

Louisa Heath

Contact Louisa Heath