Opposition to UK’s Internal Market Bill Lifts GBP/NZD from 6-Week Low

As Boris Johnson’s controversial Internal Market bill damaged relations between the UK and EU this drove the GBP/NZD exchange rate to its lowest level since July.

Last Week: Rising UK-EU Tensions Push GBP/NZD to 6-Week Low

EU lawyers indicated that the bill had already violated the withdrawal agreement, issuing an ultimatum for the UK to remove parts of the bill within three weeks or face action.

Resurgent fears of a collapse in UK-EU relations kept the Pound on the back foot ahead of the weekend, pushing the GBP/NZD exchange rate to a fresh low with the prospect of greater economic disruption.

However, the mood towards the Pound found some improvement as growing domestic opposition to the bill encouraged hopes that a potential resolution could be on the horizon.

A sharp slowdown from August’s New Zealand business PMI put pressure on the New Zealand Dollar, meanwhile, as worries over the health of the global economic outlook mounted.

Three Things to Watch out for This Week

1. UK Consumer Price Index

Forecasts point towards the UK inflation rate stumbling in August, with the monthly consumer price index expected to show a negative reading of -0.6%.

Evidence of a substantial weakening in inflationary pressure could give the Bank of England (BoE) greater cause for concern, exposing the Pound to fresh selling pressure.

2. New Zealand Gross Domestic Product

Support for the New Zealand Dollar looks set to fade in response to the release of the second quarter New Zealand gross domestic product report.

With growth expected to show a sharp contraction on both the quarter and the year investors may find renewed incentive to sell out of the New Zealand Dollar.

3. Bank of England Rate Decision

Although no change in monetary policy is likely at the BoE’s September policy announcement the GBP/NZD exchange rate may still trend lower in anticipation on Thursday.

If policymakers signal a more dovish outlook, raising the possibility of further monetary stimulus to come, this could weigh heavily on demand for the Pound.

GBP/NZD Outlook

Signs of BoE dovishness are likely to keep the GBP/NZD exchange rate trapped in the region of its recent lows, even if the New Zealand growth data proves weak.

Louisa Heath

Contact Louisa Heath