Risk-Sentiment and Brexit Uncertainties Drag Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate
The volatile British Pound to New Zealand Dollar (GBP/NZD) exchange rate has been trending lower this week, as Brexit issues return to UK Parliament and risky trade-correlated currencies like the New Zealand Dollar are bolstered by the latest global trade developments, as well as weakness in the US Dollar.
Despite wide fluctuations last week, GBP/NZD ultimately only slipped slightly from 1.8919 to 1.8904. This week so far though, GBP/NZD seems on track to see sustained losses. While GBP/NZD has rebounded slightly from its fortnight low of 1.8761, the pair still trends near the level of 1.8805 at the time of writing.
As markets have perceived optimistic US-China trade developments this week and Federal Reserve interest rate hike bets have fallen, market risk-sentiment has risen.
Investors are selling safe haven currencies like the US Dollar and buying risky trade-correlated currencies like the New Zealand Dollar, making it easier for the currency to climb versus a weak Pound.
Pound (GBP) Exchange Rates Pressured as Uncertainties of Brexit Process Deepen
With mere months left until the UK is set to formally leave the EU and the projected Brexit process will be complete, uncertainties about how the process will unfold are still worsening this week.
As the UK Parliament debate on UK Prime Minister Theresa May’s Brexit deal reconvened this week and amendments against the UK government are passed, the UK government’s control over how the process will unfold is perceived as weakening.
This is leaving the Pound volatile and unappealing, as markets still fear that a worst-case scenario ‘no-deal Brexit’ could be a possible outcome if the UK government’s solutions to the Brexit process are not agreed by UK Parliament.
With only a few sessions left until the anticipated UK Parliament vote on Prime Minister May’s deal, analysts do not expect her deal will find the support it needs to pass. According to Antje Praefcke, analyst from Commerzbank:
‘A positive vote on the exit agreement with the EU next week has not become any more likely. So please do not go ahead and buy Sterling hoping that a no-deal Brexit has become less likely ... Beware of false hopes,’
As UK Parliament voted on favour of an amendment pressuring the UK government to present a ‘Plan B’ within days if it loses next week’s vote, uncertainties about the Brexit outlook are only worsening.
New Zealand Dollar (NZD) Exchange Rates Struggles to Hold Best Levels amid Weak Chinese Data
The Pound to New Zealand Dollar exchange rate has held above its worst weekly levels today, despite market demand for riskier trade-correlated currencies like the New Zealand Dollar.
This has been due to weaker data from China, worsening concerns that the world’s second biggest economy is slowing and making investors less eager to take risks.
As China has strong trade ties to New Zealand, this was another factor keeping pressure on demand for the New Zealand Dollar.
However, overall the New Zealand Dollar remained appealing versus a Brexit-battered Pound, and market demand for riskier currencies is higher amid broad weakness in the US Dollar (USD). The weaker Chinese data simply limited the New Zealand Dollar’s gains.
Wednesday evening saw the Federal Reserve publish its latest meeting minutes, in which the bank’s policymakers showed uncertainty about whether the US economy could sustain further US interest rate hikes in 2019.
It contrasted the Fed’s policy statement in December, in which the bank confused markets by being more hawkish than expected. The bank’s dovishness made investors more willing to take risks.
GBP/NZD Exchange Rate Forecast: UK Data Unlikely to be Hugely Influential with Brexit in Focus
Unless there is a shift in market sentiment regarding the Brexit process or risk-sentiment, the Pound to New Zealand Dollar exchange rate is on track to end this week lower.
Friday’s UK data could be somewhat influential if it is highly surprising or influences the Brexit outlook in some form. UK growth results from November, as well as manufacturing and industrial production figures, will be published.
However, with mere days until the highly anticipated UK vote on UK Prime Minister Theresa May’s Brexit deal, Pound investors are likely to remain focused on Brexit news. The Pound is likely to remain under pressure.
If there are any new Brexit developments in the ongoing UK Parliament debate, this could influence the Pound.
The Pound to New Zealand Dollar (GBP/NZD) exchange rate will also be driven by risk-sentiment including the strength of the US Dollar (USD) and US-China trade developments.