GBP NZD Exchange Rate Advances Slowed by Cooling UK Service Sector

July 5, 2017 - Written by John Cameron

STORY LINK GBP NZD Exchange Rate Advances Slowed by Cooling UK Service Sector

The Pound New Zealand Dollar (GBP NZD) exchange rate found its gains trimmed this morning as the pairing was hampered by a slowdown in the UK’s service sector.

Pound (GBP) Advance Slowed by Slide in Services Activity

The Pound found its advance slowed this morning as Sterling came under pressure following the release of the UK’s latest Services PMI.

According to data compiled by IHS Markit growth in the UK’s service sector slowed in the month of June, with the index falling from 53.8 to 53.4, striking a new four-month low as it slipped past expectations it would hit 53.5.

The slowdown in the service sector appears to have been largely driven by political and economic uncertainty as the chaos caused by the recent general election and the start to formal Brexit negotiations prompted business optimism to fall as many firms seek to delay investment decisions.

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply said;

‘A creeping doubt appears to be the cause of this month’s below par performance as the UK’s departure from the EU and the unpredictable political climate continues to impact on consumers and businesses alike.’

‘Strong growth in new orders and overall activity was destabilised by a reduction in business optimism, which fell to one of the lowest levels since 2011.’

While the fall in activity was not at large as some investor had feared falling the significant drop in the Manufacturing PMI earlier in the week, the services report did round off a hat trick of poor data in June suggested that the UK’s economic growth may not have rebounded as strong as investors hoped in the second quarter.

Chris Williamson, Chief Business Economist at IHS Markit said;

“A slowing in services sector growth completes a triple-whammy of disappointing PMI survey readings. Although the three PMI surveys are running at levels that are historically consistent with GDP growing by around 0.4% in the second quarter, it’s clear that the economy heads into the third quarter losing momentum.

New Zealand Dollar’s (NZD) Weakened by Decline in Dairy Prices

The New Zealand Dollar was weakened on Tuesday as prices for New Zealand’s largest export fell again.

Dairy prices slipped again yesterday following the most recent Global Dairy Auction, with the overall index of dairy products declining 0.4% and adding to a 0.8% fall in the previous auction.

The fall in prices was largely driven by a decline in milkfat products as butter prices cooled off after considerable gains in recent months.

AgriHQ dairy analyst Susan Kilsby said;

‘There has been concern that buyers would no longer be able to absorb the record prices that [butter and anhydrous milkfat] have been hitting, though it is too early to tell whether this is the start of a longer term downward trend.’

Analysts had also hoped that continuing production problems in Germany and France would help to reduce surplus and increase demand.

However with New Zealand’s output predicted to accelerate over the next 12 months as production rapidly recovers from recent flooding, buyers do not expect to see any net fall in stock levels.

With the Reserve Bank of New Zealand (RBNZ) latest monetary policy meeting striking a more optimistic tone over the potential for sustained dairy prices to allow for the tightening of monetary policy, markets are likely to be dismayed should the recent downturn last much longer.

GBP NZD Forecast: Carney Speech Ahead

Looking ahead the GBP NZD exchange rate may continue to appreciate later this week following a speech by Bank of England (BoE) Governor Mark Carney, with investors hoping to hear more about the possibility of the bank accelerating the pace of rate hikes over the coming months.

Meanwhile the New Zealand Dollar may struggle on Thursday if June’s Business PMI declines as economists forecast.

Current Interbank Exchange Rates

At the time of writing the GBP NZD exchange rate was trending around 1.7756 and the NZD GBP exchange rate was trending around 0.5630.

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