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Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Slips despite ?Happy-go-Lucky? UK Consumers

February 15, 2019 - Written by John Cameron

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Slides despite UK Retail Sales Bouncing Back in January

The Pound New Zealand Dollar (GBP/NZD) exchange rate has slumped over the course of the morning, and is currently down 0.3%, trading at an inter-bank rate of NZ$1.8680.

This morning, UK retail sales exceeded expectations, bouncing back sharply in January and boasting the largest year-on-year rise since December 2016.

Despite this, the pairing still slid, with Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics noting:

‘January's jump in retail sales shows that most households have maintained a happy-go-lucky mentality, despite the fraught political situation. While consumers' confidence is down, this reflects rather fuzzy expectations that Brexit might be costly eventually.’

New Zealand Dollar (NZD) Boosted by US China Optimism

Talks in Beijing have reportedly broken up without securing a deal, with a warning coming from the US that ‘very difficult issues’ remain unsolved.

Nevertheless, global risk sentiment is subdued on reports talks are set to continue next week in Washington, with both sides seeming eager to reach a deal before the deadline.

This week saw attempts to de-escalate a tariff war ahead of the 1 March deadline, with optimism yesterday buoying the risk-sensitive New Zealand Dollar (NZD).

Thursday saw the ‘Kiwi’ boosted by rumours that Trump would extend the ‘truce’ for a further 60-days in order to secure a deal.

Earlier: New Zealand Dollar (NZD) Slides as Manufacturing Slows

Data released earlier this morning showed that New Zealand’s manufacturing sector saw a lower level of expansion in January.

The seasonally adjusted BusinessNZ PMI figure stood at 53.1, lower than the previous reading of 55.1.

This likely weighed down the New Zealand Dollar (NZD), as the GBP/NZD pairing rose overnight.

Yesterday: Pound (GBP) Plummets Following Dovish BoE Speech

Yesterday morning, following a speech from the Bank of England’s (BoE) Gertjan Vlieghe, the GBP/NZD pairing plummeted.

In his dovish speech, Vlieghe emphasised that even if the UK secures a Brexit deal, the weakness in the economy will mean a slower pace of interest rate hikes in the future.

Vlieghe stated:

‘In the case of a no-deal scenario I judge that an easing or an extended pause in monetary policy is more likely to be the appropriate policy response than a tightening. We will have to judge in real time how well inflation expectations remain anchored, and how households and businesses are reacting to the disruptions.’

Downgrading his outlook to one rate hike per year, he claimed that, since June 2016, the vote to leave the European Union (EU) has cost the UK about 2% of GDP - or £800M a week.

GBP/NZD Outlook: Will Sterling Benefit from Dip in UK Unemployment?

The Pound New Zealand Dollar (GBP/NZD) exchange rate could start next week’s session in a position of strength if the UK unemployment rate slips to 3.9% as forecast.

Sterling could see further support from the claimant count change, which is predicted to only see a 2.4K change compared to the previous month’s jump of 20.8K.

The New Zealand Dollar (NZD) could gain an upswing of support on Tuesday following the release of the Global Dairy Trade Index.

If dairy prices continue to follow the current trend and increase, it could buoy the ‘Kiwi’.

The NZ Producer Price Index is also due for release on Tuesday, which could see NZD make further gains if inflation rises.

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