Despite market uncertainty ahead of the publication of New Zealand’s Q2 growth results, a combination of fresh Brexit jitters and higher demand for risk-correlated currencies kept pressure on the British Pound to New Zealand Dollar (GBP/NZD) exchange rate on Thursday.
Brexit hopes initially helped GBP/NZD to see fairly steady movement since markets opened this week, but at the time of writing on Wednesday the pair was trending near a weekly low of 1.9877. GBP/NZD opened the week at the level of 1.9972, so could be on track to lose around a cent.
GBP Sold as Brexit Uncertainties Return on Irish Border Disagreements
The Pound saw relatively steady movement earlier in the week, amid hopes that there could be major developments in UK-EU Brexit negotiations this week and lightened fears regarding the possibility of a ‘no-deal Brexit’.
However, on Wednesday the latest comments from UK Prime Minister Theresa May concerned investors, as it indicated that disagreements remained on major issues like Irish border.
Speculation earlier in the week that EU Chief Negotiator Michel Barnier was preparing to discuss alternative solutions to the issue of the Irish border were doused on Wednesday, amid reports that UK PM May was prepared to reject the offers.
May’s stance caused concern that the UK and EU may not be able to reach an agreement on the issue of Ireland’s border, which caused the Pound to fall on fears that such obstacles could prevent a UK-EU Brexit deal from being reached.
According to Christin Tuxen, Head of Currency Research at Danske Bank A/S:
‘This is a break in the recent stream of positive UK-EU tone in relation to Brexit and illustrates that the Irish backstop remains a key outstanding issue going into the Brexit endgame,
It is still too early to call for broad-based GBP strength even if we are positive on a ‘decent Brexit’ deal to be landed down the road.’
As a result of the fresh Brexit uncertainties, the Pound was unable to benefit from Wednesday’s UK Consumer Price Index (CPI) inflation rate report.
UK inflation beat expectations in every major print. Month-on-month inflation was forecast to rise to 0.5%, but instead jumped from 0.0% to 0.7%. Meanwhile, the yearly figure climbed from 2.5% to 2.7% rather than sliding to the expected 2.4%.
The data briefly bolstered Bank of England (BoE) interest rate hike bets, but also raised concerns that the household pay squeeze could resume if inflation continues to rise.
NZD Struggles to Hold Best Levels Ahead of New Zealand Growth Report
The New Zealand Dollar advanced on Wednesday, but largely due to weakness in the Pound and global demand for riskier currencies.
Despite market uncertainty ahead of Thursday’s anticipated New Zealand Gross Domestic Product (GDP) report, the relatively risky trade-correlated New Zealand Dollar has benefitted from the latest rise in risk-sentiment.
The US and China ramped up trade tariffs against one another this week, as economists feared.
While this would typically weaken risk-sentiment and make investors eager to buy safe haven currencies like the US Dollar (USD), the latest escalation in trade action wasn’t actually as severe as expected.
The US will not implement its 25% tariff on $ 200b of Chinese goods until later in the year, only planning to implement a 10% tariff at first.
Meanwhile, analysts noted that China’s retaliation was not as severe as the one China had hinted at in recent months.
The news caused speculation that US and China trade stances were softening, and made investors more hopeful about the possibility of US-China trade negotiations.
GBP/NZD Forecast: New Zealand Growth Report in Focus
The Pound to New Zealand Dollar exchange rate could still see a notable shift in movement towards the end of the week, depending on potential Brexit developments, or market reaction to New Zealand’s highly anticipated Q2 growth report.
Thursday could be the week’s most influential session for GBP/NZD.
The Asian session will see the publication of New Zealand’s Q2 Gross Domestic Product (GDP) growth report. New Zealand growth is forecast to have accelerated slightly quarter-on-quarter, but have slowed from 2.7% to 2.5% year-on-year.
If these come in higher than expected, it could give the New Zealand Dollar sturdier support towards the end of the week and this could help the currency push GBP/NZD lower.
Thursday will also see the publication of Britain’s August retail sales results, which could influence the Pound.
However, potential developments regarding the Brexit process, particularly during the EU summit in Salzburg, are most likely to influence the Pound to New Zealand Dollar exchange rate towards the end of the week.
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TAGS: Pound New Zealand Dollar Forecasts