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Pound to New Zealand Dollar Exchange Rate: GBP/NZD Tests 2018 Lows as UK PM May Attempts to Delay Parliament Vote

December 10, 2018 - Written by David Woodsmith

GBP/NZD Exchange Rate Edges Back Above NZ$1.83

While Brexit uncertainty remains rife following PM Theresa May’s decision to cancel the parliamentary vote, the Pound was able to stabilise on Tuesday, with the Pound Sterling New Zealand dollar (GBP/NZD) exchange rate recouping almost 0.3%.

The Pound’s recovery against currencies like the US and Canadian Dollars was a little more impressive, with GBP deriving some support from impressive UK employment stats.

Average earnings increased by more-than-expected, while the unemployment rate remained at a multi-decade low of 4.1%.

Despite the persistent US-China trade tensions weighing on market demand for riskier trade-correlated currencies like the Kiwi, the British Pound to New Zealand Dollar (GBP/NZD) exchange rate plummeted on Monday as UK Prime Minister Theresa May delayed a planned UK Parliament Brexit vote and Brexit uncertainties worsened.

Last week, risk-off movement actually helped GBP/NZD to rise slightly from the level of 1.8536 to 1.8547. However, GBP/NZD also briefly hit a yearly low of 1.8287 last week and the pair fell to near those levels again on Monday, trending near the level of 1.8365 at the time of writing.

Pound Sterling (GBP) Exchange Rates Plummet as UK Prime Minister Announces Delay for Parliament Brexit Vote

After failing to gather enough support to pass her negotiated UK-EU Brexit deal through UK Parliament, UK Prime Minister Theresa May announced on Monday afternoon that the planned Parliament vote would be delayed.

May indicated that she intended to secure legal assurances from Brussels that the controversial UK-Ireland backstop would not last indefinitely.

At this late stage, with mere months until the projected formal Brexit date, the delay in the key UK Parliament Brexit vote merely worsened the huge number of uncertainties remaining in the Brexit process.

Investors sold the Pound en masse on Monday amid concerns that the UK government’s stability was thinning. According to David Cheetham, Chief Market Analyst at XTB:

‘The negative reaction in the markets is more likely due to what it means for her position rather than the failure to win the vote - with even her staunchest supporters already highly sceptical as to whether the bill would pass’

Of course, the bill being expected to fail meant there was already significant Brexit uncertainty – there is now simply UK political uncertainty on top of that.

Analysts still believe that Sterling could strengthen again if Brexit uncertainty lightens, as Jane Foley from Rabobank said:

‘Until the market knows what will happen with respect to Brexit one way or the other then they [traders] will remain extremely anxious,

Once we know what is happening, things will be more settled,’

Until then though, the Pound remains weak and the UK outlook remains clouded in uncertainty, with no real signs of clarity on how exactly the Brexit process will unfold.

New Zealand Dollar (NZD) Exchange Rates Benefit from Rival Weakness Despite Risk Aversion

Last week saw US-China trade tensions deepen, despite hopes at the beginning of the month that they would lighten amid an announced trade truce between the nations.

Instead, fiery rhetoric from US President Donald Trump and news that Huawei’s Chief Financial Officer had been arrested in Canada served to worsen the tense relationship between the nations.

This led investors to sell riskier trade-correlated currencies like the New Zealand Dollar, and was the primary cause for GBP/NZD losses last week.

This week so far though, broad weakness in the US Dollar (USD) has made it easier for the risky New Zealand Dollar to climb versus Sterling.

The US Dollar has been sold due to speculation that the Federal Reserve is coming to the end of its interest rate hike cycle.

GBP/NZD Exchange Rate Forecast: UK Political Turmoil to Remain in Focus

As has often been the case over the past month, developments in UK politics and the highly uncertain Brexit outlook are likely to remain the biggest focus for Pound investors – especially after Monday’s huge plummet.

As UK Prime Minister Theresa May has said she will look to gain further assurances from Brussels before putting the UK-EU deal to Parliament again, investors will closely watch for developments there.

Of course, any developments regarding a potential vote of no confidence in Prime Minister May or the UK government would also prove highly influential for the Pound.

Investors are likely to brush over Tuesday’s UK job market report due to the intensifying focus on Brexit uncertainties.

New Zealand Dollar investors, on the other hand, will be reacting to potential shifts in market risk-sentiment, US-China trade tensions, and the strength of the US Dollar.
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