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GBP NZD Slides on Disappointing S&P Assessment of UK Economy

October 5, 2017 - Written by John Cameron

The Pound New Zealand Dollar exchange rate fell today on the threat of a possible Conservative leadership challenge and a disappointing assessment of the UK’s economy by ratings agency Standard & Poor’s (S&P).

S&P Insists UK Economy Not Strong Enough to Warrant Rate Hike – GBP Stumbles

The S&P ratings agency has asserted that it is sceptical that the Bank of England (BoE) will be able to justify a rate hike following the recent poor performance of various UK data releases such as Monday’s manufacturing PMI and Tuesday’s construction PMI, as well as the continually disappointing UK wage growth.

‘We remain a bit sceptical as to how justified such a hike would be in the near term,’ the agency stated. ‘One rate rise may come in November, but further increases aren’t justifiable given Britain’s weak wage growth.

These comments come at a direct contrast to the words of BoE Governor Mark Carney, who stated last week that the bank ought to raise the cost of borrowing if the economy continues to show signs of strengthening (‘all the indications are that it is – in the relatively near term you can expect that interest rates will increase’).

Beyond this, however, the S&P also criticised the BoE’s motives, asserting that the bank was perhaps only promoting the idea of a rate hike as a means of preventing the Pound from sliding too far.

This news drove the Pound to drop even further, allowing the New Zealand Dollar to continue to capitalise.

GBP Falls as on Concerns of Possible Conservative Leadership Challenge

Apprehensions that UK Prime Minister Theresa May’s leadership may be challenged following her Conservative Conference speech have also driven demand for the Pound down.

May’s potential to lead the UK through Brexit continues to be questioned, with reports now claiming that Tory rebels will confront May in the next three days and demand she steps down before the end of the year.

Tory MP and former Minister, Ed Vaizey publically announced today that ‘quite a few people are firmly of the view that she should resign’, though he also asserted that it ‘has to be all or nothing’ - in that all rebels have to go public with their criticism at once, rather than a few.

If this does occur then chaos and instability will likely ensue as markets struggle to ascertain who exactly will be replacing her and what it will mean for the UK’s economy.

Despite this, however, a number of prominent Tory MP’s continue to back Theresa May and dismiss claims of an imminent coup.

GBP NZD Forecast: GBP Liable to Claw Back Losses on BoE Haldane and McCafferty Speeches

The New Zealand Dollar has been performing relatively well today, despite Tuesday’s disappointing global dairy trade price drop of -2.4%.

Whether GBP NZD will remain in the ‘Kiwi’s’ favour, however, is questionable – with tonight featuring speeches from BoE Ian McCafferty and BoE Andy Haldane.

Both McCafferty and Haldane are currently regarded as hawkish.

If they decide to continue to express this sentiment at these speeches then the Pound may well claw back its losses against the ‘Kiwi’ Dollar later into the evening.

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