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Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Fluctuates as UK Manufacturing Sector Edges Closer to Recession

February 4, 2019 - Written by John Cameron

Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Fluctuates After Lower-than-Forecast UK Construction PMI

The Pound Sterling New Zealand Dollar (GBP/NZD) exchange rate has fluctuated throughout the day and is currently trading up around 0.3% at an inter-bank rate of NZ$1.9034.

This morning saw the release of the UK Markit construction PMI for January, which slipped to a lower-than-expected figure of 50.6 from 52.8, which was the slowest rise in business activity in ten months.

Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply stated:

‘The sector suffered a sharp drop in output growth in January, and the softest rise in purchasing volumes since September 2017, as Brexit continues to hamper progress and dampen client confidence.

[…] The biggest shock came in the form of job creation which has managed to suffer the slings and arrows of Brexit highs and lows with solid hiring since the referendum result. Employment rose at the slowest rate since July 2016 and with optimism also in short supply, the sector only needs a small nudge to tip it closer to recession.’

New Zealand Dollar (NZD) Struggles to Make Gains despite Best Building Permits Since August

Sunday saw the release of New Zealand’s seasonally adjusted building permits for December, which rose from the previous -1.9% to 5.1%.

This was the best figure seen since August 2018, which allowed the ‘Kiwi’ to advance against the Pound.

Also a likely factor in preventing the Pound from rallying against the risk-sensitive NZD was the release of China’s Caixin services PMI, which fell to 53.6, which was not as low as expected.

The data revealed that employment overall had stabilised and that services activity continues to rise solidly, although the manufacturing sector remains subdued.

Dr Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group stated:

‘Demand for services remained solid as the increase in new business accelerated marginally. The sub-index of employment rose, pointing to a faster expansion of payroll number at service providers.’

Last Week: Pound (GBP) Struggles after Manufacturing Sector Hits Three-Month Low

At the end of last week’s session January’s Markit manufacturing PMI was released for the UK, showing that the sector had hit a three-month low at 52.8, which likely did little to aid the Pound against the ‘Kiwi’ as it fell to a low of NZ$1.8844.

The data also showed that employment fell for the second time in the past 30 months, with Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, stating:

‘Brexit blight strikes again with the weakest performance in manufacturing production since July 2016 and optimism withers away under the weight of uncertainty as the UK teeters on the edge of departure from the EU.

[…] After months of maintained job creation, job seekers will be disappointed by the drop in new roles as businesses fought hard to control costs and improve efficiency. Withouth a strong upturn in new orders and underlying growth there may be further hesitation to hire next month and with a general slowdown in the global economy and the Eurozone, we’re likely to continue to see significant challenges ahead.’

GBP/NZD Outlook: Will a Decline in Service Sector Growth Drag Down Sterling?

Tomorrow will see the release of the UK’s Markit services PMI, which is forecast to show a slower rate of growth in the services sector, as the figure is set to slip from 51.2 to 51.0. This could see the Pound New Zealand (GBP/NZD) exchange rate slide.

New Zealand’s unemployment rate for Q4 is due for release on Wednesday, with the forecast suggesting that unemployment is going to rise from 3.9% to 4.1%, which could see sentiment for the ‘Kiwi’ dampened.

Also due for release on Wednesday is the release of New Zealand’s Global Dairy Trade Index, which may see NZD rise against Sterling if this figure increases further than the previous reading of 4.2%.

US-Sino relations are also likely going to be a factor in causing movement in the pairing, as if there are further signs that the two countries are closer to making a deal, the risk-sensitive New Zealand Dollar may rise.

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