UK Services PMI Smashes Expectations – Pound New Zealand Dollar (GBP/NZD) Exchange Rate Rises

June 5, 2018 – Written by John Cameron

Pound (GBP) Exchange Rates Bolstered as UK Services Sector Makes Surprise Recovery

The Pound New Zealand Dollar (GBP/NZD) exchange rate steamed ahead on Tuesday, bolstered by a better-than-expected UK services PMI and clear signs of recovery in the UK’s Q2 performance.

According to Markit, the UK’s service sector performance accelerated in May with a score of 54.0, up from the previous period’s 52.8 and the forecast of 53.0.

This was a clear recovery after the severe weather crippled the reading in March and helped to up the ante for a rate hike from the Bank of England (BoE) sometime this summer.

Indeed, with the services sector making up near 80% of UK GDP the significance of this PMI cannot be understated.

Chris Williamson, Markit’s Chief Business Economist shared his thoughts on the results:

‘The improvement in service sector activity adds to evidence that the economy is on course to rebound in the second quarter…’

There were, however, some concerns regarding a soft rise in new work inflows, which Mr Williamson claimed could wane in the coming months as ‘Brexit-related uncertainty continues to weigh on spending decisions and dampen business confidence’.

New Zealand Dollar (NZD) Exchange Rates Encumbered ahead of Key US Data

The New Zealand Dollar’s (NZD) rally slowed on Tuesday, with diminishing risk appetite amongst the markets limiting demand for the ‘Kiwi’.

Investors are currently waiting for the key US ISM non-manufacturing services composite reading for May, with the expected rise capable of siphoning demand away from the riskier commodity currencies and returning it back to the ‘Buck’.

Beyond this, investors are also holding for the global dairy trade price auction, wherein the price of New Zealand’s number 1 commodity; dairy products, will be decided.

If we see another rise in the bi-weekly reading then we could see GBP/NZD come under pressure, especially if we get a similar repeat of the last sizable rise of 1.9%.

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Forecast: Can we Expect a BoE Rate Rise Soon?

The outlook for the Pound New Zealand Dollar (GBP/NZD) exchange rate is currently slightly mixed, with some expecting a rate rise from the BoE in August and others expecting the Bank of England to delay things even longer.

BoE rate setter Silvana Tenreyro recently stated that she expects borrowing costs to rise gradually over the next few years, but delaying a hawkish move even longer in 2018 could provide a ‘significantly clearer picture’ for the state of the British economy.

On the other hand, a recent poll of economists by Reuters revealed that the majority expect a rate rise in August – even with political uncertainties regarding Brexit negotiations and the UK’s future outside of the EU.

In this regard, as long as data continues to improve then we could see a rate rise in late summer, but if Brexit negotiations fail to sufficiently progress then we could see increasingly dovish attitudes amongst the Monetary Policy Committee.

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TAGS: Pound New Zealand Dollar Forecasts