GBP to NZD Exchange Rate Weakens on Brexit Jitters Despite Trade War

July 6, 2018 – Written by Ben Hughes

June’s UK PMI data was impressive enough to cause a jump in Bank of England (BoE) interest rate hike bets, but this wasn’t enough to keep the British Pound to New Zealand Dollar (GBP/NZD) exchange rate buoyed. Instead, Brexit jitters and a brief boost in risk-sentiment pushed the pair lower towards the end of the week.

After opening the week at the level of 1.9516, GBP/NZD spent most of the week trending closely to the week’s opening levels amid weakness in both currencies. The pair was unable to hold its ground on Friday though, and ended the week closer to a one week low of 1.9390.

GBP Demand Limited by Persisting Brexit Uncertainties

Strong UK data and higher Bank of England (BoE) interest rate hike bets would typically be cause to buy the Pound.

However, in recent weeks the considerable number of uncertainties still surrounding the Brexit process and Britain’s future relationship with the EU has weighed heavily on Sterling.

This is largely why the Pound failed to advance against many majors, including the risky New Zealand Dollar, despite Markit’s June PMI results all beating forecasts over the last week.

In particular, the services PMI beating forecasts indicated that Britain’s economic activity had rebounded more than expected from the poor performance seen at the beginning of the year.

Bank of England (BoE) Governor Mark Carney noted that this matched the bank’s view, that Britain’s economic slowdown had been caused more by weather than any signs of underlying economic weakness.

As a result, investors became more confident that the Bank of England would hike UK interest rates in August.

Despite this though, the Pound ultimately ended the week on a sour note as multiple major businesses issued fresh warnings about the potential negative impact the Brexit process could have on UK jobs.

JPMorgan confirmed on Thursday that it would begin to move staff members abroad from the City of London to continental Europe in the coming months, in order to minimise the potential fallout from the Brexit process.

On Friday, Airbus also confirmed that it was preparing ways to minimise damage from the Brexit process.

Urgencies from businesses and economists for the UK and EU to show better progress in negotiations and offer more clarity have been a significant pressure on Pound trade recently.

However, many economists still believe that investors will feel a little more optimistic by the end of the year. According to a note from MUFG:

‘While a rate hike will help provide some support for the pound, the period of Brexit uncertainty (even assuming some progress in July) is likely to persist going forward, which is likely to limit the extent of Sterling appreciation in 2018,

Still, we continue to expect a deal to be reached this side of Christmas which will see a more notable period of GBP appreciation.’

NZD Demand Limited by Lack of Fresh Support

While the New Zealand Dollar strengthened towards the end of the week, this was largely due to investors buying the currency back from its recent lows rather than any fresh reasons to buy it.

The Reserve Bank of New Zealand (RBNZ) has recently expressed caution, commodity news has been mixed.

On top of this, it was essentially confirmed last Friday that a trade war between the US and China had begun.

For now though, investors opted to sell the US Dollar (USD) on the trade war news rather than risky trade-correlated currencies like the New Zealand Dollar.

This actually led to a brief rise in demand for NZD, but its gains were limited.

GBP/NZD Forecast: Brexit, Trade War, UK GDP Changes and More

While next week’s economic calendar isn’t hugely busy, there are definitely some points of interest in there and Pound to New Zealand Dollar exchange rate trade will of course continue to be influenced by Brexit and trade war headlines.

All of Britain’s most notable data will be published on Tuesday, including May’s UK trade balance results and production figures.

Notably though, Tuesday will see the publication of Britain’s first monthly Gross Domestic Product (GDP) report. The UK GDP figures are typically published quarterly, but the May figure on Tuesday will be the first monthly figure.

As for the New Zealand Dollar, New Zealand food inflation will be published on Thursday. The most influential NZ data will be the June business PMI next Friday.

If these results are unsurprising though, the Pound to New Zealand Dollar exchange rate is more likely to be influenced by Brexit and trade war developments.

GBP/NZD is unlikely to advance much as the New Zealand Dollar is trending closely to key support levels, so Brexit jitters could drag GBP/NZD lower.

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TAGS: Pound New Zealand Dollar Forecasts