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GBP NZD Exchange Rate Slides as UK Manufacturing Sector Slows

July 3, 2017 - Written by John Cameron

The Pound New Zealand Dollar (GBP NZD) exchange rate slumped from its best levels today as a disappointing Manufacturing PMI weighed on Sterling.

Pound (GBP) Slides as Factory Activity Slows



The Pound fell against the New Zealand Dollar at the start of the European session this morning as Sterling was battered by an unexpectedly poor Manufacturing PMI.

According to data compiled by IHS Markit, activity in the UK’s factory sector slowed to 54.3 in June, down from 56.3 in May which was also downwardly revised from 56.7. This was far lower than the 56.5 that economists had expected the index to show and was its slowest pace of growth since March.

While appearing to have been largely unaffected by the uncertainty of the general election and the start of formal Brexit negotiations the accompanying report pointed to a broad-based slowdown across the entire manufacturing sector suggesting that the downturn had more to do with the fundamental weaknesses in Britain’s factory sector.

Also putting on a damper on future PMI figures was that the data showed a drop in export orders, with the slump denting hopes that the weakened Pound would help to bolster the appeals of UK products to foreign buyers.

Rob Dobson, Senior Economist at IHS Markit said;

‘The UK manufacturing sector largely weathered the uncertainty of a general election and start of formal Brexit negotiations to eke out further output growth at the end of the second quarter. However, the rate of expansion eased again in June, with growth weakening across the consumer, intermediate and investment goods industries.’

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‘While the survey data add to signs that the economy is likely to have shown stronger growth in the second quarter, further doubts are raised as to whether this performance can be sustained into the second half of the year.’

The lacklustre PMI will also cast doubts over the UK’s second quarter growth, which was initially expected to have rebounded strongly after GDP plummeted to just 0.2% at the start of the year.

However with the manufacturing PMI coming in behind target analysts may fear that growth over the last three months may also be more subdued that markets had hoped.

New Zealand Dollar’s (NZD) Early Strength Driven by Chinese Growth


The New Zealand Dollar strengthened at the start of this week during the Asian trading session as China opened the day with the release of its own manufacturing PMI.

The Caixin/Markit Purchasing Managers’ index rose from 49.6 to 50.4 in June, beating expectations that it would have contracted for the second consecutive month and reaching its highest level since March.

With China being New Zealand’s largest trading partner the renewed grow in China’s factories helped to bolster the appeal of the ‘Kiwi’ and allowed it push higher in early trading.

However looking deeper the data painted a much more mixed message over the health of China’s manufacturing sector, with data showing a fall in both workforce and inventory levels it would suggest that firms are not quite so confident of future growth.

This along with a general decline is risk appetite by the start of the European session meant that the New Zealand Dollar had relinquished most of its gains within a few hours.

GBP NZD Forecast: Following UK PMIs to also Perform Poorly?



Looking ahead the GBP NZD exchange rate is likely to continue to struggle over the next couple of days with the release of the UK’s latest construction and services PMIs.

While the construction sector only accounts for a small part of the UK’s growth, likely limiting its potential impact on the Pound when it is released tomorrow, the services sector is a dominant part of Britain’s economy and should it perform similarly poorly to the manufacturing PMI then Sterling is likely to plummet on Wednesday.

Meanwhile the New Zealand Dollar’s movement tomorrow is likely to be closely tied to the global dairy auction, with the Kiwi likely to weaken if dairy prices slide once again.

Current Interbank Exchange Rates



At the time of writing the GBP NZD exchange rate was trending around 1.7773 and the NZD GBP exchange rate was trending around 0.5627.

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