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GBP/NZD Outlook: Pound to New Zealand Dollar Exchange Rate Volatility Persists as Uncertainties Leave Both Currencies Weaker

December 17, 2018 - Written by Minesh Chaudhari

Despite the deepening UK political and Brexit uncertainties seen last week, the British Pound to New Zealand Dollar (GBP/NZD) exchange rate recovered most of its losses. When markets opened on Monday, the volatile exchange rate fluctuated as Brexit fears weighed on Sterling while the New Zealand Dollar’s strength was limited by global growth jitters.

Last week saw a wide movement in the volatile GBP/NZD pair. GBP/NZD opened the week at the level of 1.8545 before plummeting over four cents and touching on a 2018 low of 1.8132 in the middle of the week. GBP/NZD then rebounded strongly however, and closed the week just below the week’s opening levels at around 1.8520.

Since markets opened on Monday, GBP/NZD has fluctuated near the week’s opening levels.

Pound Sterling Exchange Rates Mixed as UK Prime Minister Rejects Calls for Second EU Referendum

Market uncertainty about how the Brexit process will unfold has only worsened in the past week.

UK Prime Minister Theresa May, anticipating a defeat for her unpopular negotiated UK-EU withdrawal deal, delayed a key UK Parliament vote on the deal in order to attempt to negotiate additional assurances from the EU.

However, Prime Minister May was unable to secure any assurances.

On top of this, PM May also faced a no-confidence vote from her Conservative Party last week. While she successfully survived the vote, over a third of the party voted against her leadership and this left investors concerned about UK political stability.

Sterling recovered most of its weekly losses due to market risk-aversion weakening the New Zealand Dollar, as well as relief that UK Prime Minister May had survived the no-confidence vote.

Sterling ultimately remained unappealing however, and market Brexit uncertainty has deepened as UK politicians struggle to agree on how the process should proceed.

UK Prime Minister Theresa May argued on Monday that the idea of a second EU referendum was harmful and could ‘break faith with the British people’. She said:

‘Another vote which would do irreparable damage to the integrity of our politics, because it would say to millions who trusted in democracy, that our democracy does not deliver. Another vote which would likely leave us no further forward than the last.’

The UK government also indicated on Monday that it would ramp up plans for the possibility of a worst-case scenario ‘no-deal Brexit’, which also left investors anxious and limited the Pound’s appeal.

New Zealand Dollar (NZD) Exchange Rates Remain Unappealing Ahead of New Zealand Growth Report

Market jitters about an upcoming New Zealand growth report, coupled with signs of weakening global growth, left the New Zealand Dollar less appealing on Monday.

While the risky trade-correlated New Zealand Dollar briefly surged last week, due to signs of de-escalation in US-China trade tensions, the New Zealand Dollar slumped again later in the week.

The latest key Chinese data indicated that the second biggest economy in the world was slowing more than expected, which dampened market demand for risk-taking. According to ANZ Bank New Zealand economists Sharon Zollner and Philip Borkin:

‘The NZD was hit hard during the New Zealand session on Friday on poor China data, and it failed to recover meaningfully overnight.’

Concerns about slowing global growth continued to weigh on the New Zealand Dollar on Monday, leaving GBP/NZD fluctuating.

GBP/NZD Exchange Rate Forecast: Anticipated New Zealand Growth Data Leaves Markets Jittery

On top of the usual Brexit and global growth jitters, the Pound to New Zealand Dollar exchange rate’s volatility is likely to be worse as investors anticipate major New Zealand data due for publication on Thursday.

New Zealand’s Q3 Gross Domestic Product (GDP) growth data is expected to slow notably quarter-on-quarter, from 1.0% to 0.6%. If the data falls near or short of expectations the New Zealand Dollar could be in for further losses.

New Zealand’s December business confidence report from ANZ will come in on Tuesday, followed by Westpac’s consumer confidence data for Q4 on Wednesday, but these are unlikely to be as influential.

Of course, an expected Bank of England (BoE) policy decision on Thursday could also prove influential for the Pound to New Zealand Dollar exchange rate if the bank takes any surprising stances on the Brexit process and how it may impact Britain’s economic outlook.
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