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GBP to NZD Exchange Rate Struggles to Hold Last Week?s Gains Ahead of Fresh Brexit Debate

January 28, 2019 - Written by Ben Hughes

Investors sold the Pound when markets opened for the week, amid fresh uncertainty over how the Brexit process would look by the end of the week. The British Pound to New Zealand Dollar (GBP/NZD) exchange rate slipped on Monday as a result, but could still climb later in the week if there are optimistic Brexit developments tomorrow.

Despite some resilient demand for riskier trade-correlated currencies last week, GBP/NZD spent most of the week climbing. GBP/NZD opened the week at the level of 1.9092 and closed at the level of 1.9304. On Friday, GBP/NZD briefly touched on a two month high of 1.9412.

Since then, GBP/NZD has been steadying lower as Brexit uncertainties persist and lingering risk-sentiment keeps investors from selling the New Zealand Dollar much further. On Monday afternoon, GBP/NZD trended in the region of 1.9222.

Amid a lack of fresh developments on Monday, Pound and New Zealand Dollar investors simply adjusted their positions in anticipation of this week’s expected major political developments.

GBP Exchange Rates Steady Ahead of Parliament’s Next Major Brexit Debate

After two weeks of strong performance for the Pound, investors steadied on the British currency today, adjusting their positions ahead of what could be major developments in the Brexit process from tomorrow onwards.

There were no significant developments in UK economic or political news throughout the day, leaving investors to sell the Pound from its best levels in profit taking and speculate how the Brexit process could develop this week.

On Tuesday, UK Parliament will hold another debate on Brexit. The government’s negotiated Brexit withdrawal plan will see another vote, but it is not expected to pass.

Instead, investors are anxiously anticipating the possibility that an amendment regarding a possible Brexit delay or even a second referendum could find some backing in Parliament.

The possibility that MPs could vote in favour of an amendment that would pressure the government into formally delaying the Brexit process in order to prevent a No-deal outcome has been a major cause of recent Pound strength.

However, analysts urged caution ahead of the Brexit debate, arguing that a No-deal Brexit would still be the outcome if no resolution is agreed. According to Timothy Graf, Head of Macro Strategy at SSGA in London:

‘In the very short term, we would be cautious on the Pound as none of the amendments tomorrow are legally binding unless the government prepares to shift its red lines, and we haven’t seen anything yet,’

NZD Exchange Rates Benefit from Slight Boost in Risk-Sentiment

The New Zealand Dollar was able to slightly more easily benefit from Monday’s Pound weakness, thanks to stronger market demand for risky trade-correlated currencies throughout the day.

Market jitters about the long-lasting US government shutdown lightened slightly after the shutdown saw a temporary resolution at the end of last week.

While the resolution will only last until mid-February, this was enough to calm markets enough to make taking risks a little more appealing.

However, the higher demand for risk-taking was limited, with major events regarding Brexit, the Federal Reserve, and US-China trade negotiations ahead. This limited market demand for the risky New Zealand Dollar.

Martin Rudings, a Dealer at OMF, said:

‘I don’t think anybody is going to get too involved in position-taking on a Monday with all of those things coming up.’

GBP/NZD Exchange Rate Forecast: Political Developments to Drive Pair This Week

Amid a lack of notable New Zealand data due for publication for most of the week, the Pound to New Zealand Dollar exchange rate will be reacting to shifts in Brexit sentiment and global risk sentiment in the coming sessions.

Tuesday’s Brexit debate could of course be hugely influential if any amendments or legislation from MPs finds strong enough support to influence the Brexit process in some way.

The UK government’s Brexit bill is still perceived as lacking the support needed to enter UK law, so tomorrow’s debate could lead to the first signs of how the Brexit process will unfold going forward.

If there is strong support for a delay to the Brexit process, the Pound could be in for further strength as No-deal Brexit fears would lighten. The possibility of a second referendum would also make Sterling more appealing.

New Zealand Dollar investors, on the other hand, will be hotly anticipating this week’s resuming US-China trade negotiations. Optimistic trade news would make investors more willing to take risks and the Pound to New Zealand Dollar exchange rate would weaken.
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