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GBP to NZD Exchange Rate Falls Back from Best Levels as Risk-Sentiment Calms

August 8, 2019 - Written by Frank Davies

Despite the Reserve Bank of New Zealand’s (RBNZ) shockingly deep interest rate cut yesterday, the British Pound to New Zealand Dollar (GBP/NZD) exchange rate has given up a good chunk of its weekly gains. Investors continue to sell the Pound on deepening uncertainties in Brexit and UK politics, while the New Zealand Dollar has rebounded after global trade jitters cooled from days of risk-off movement.

Since opening this week at the level of 1.8591, GBP/NZD has been trending with an upside bias as US-China trade jitters and central bank news keeps the New Zealand Dollar weak.

GBP/NZD touched on a monthly high of 1.9016 in the middle of the week, but has since tumbled and currently trends closer to the level of 1.8723.

GBP Exchange Rates Tumble as Brexit and Political Uncertainties Deepen

While no-deal Brexit speculation and fears have dominated headlines and the Pound outlook in recent weeks, the Pound continues to struggle to hold any recovery.

This indicates that investors aren’t done selling the Pound, as Brexit fears deepen further and further.

Fresh polls and reports published today showed that economists on average believed the chance of a worst-case scenario no-deal Brexit had risen to 35% since Boris Johnson became UK Prime Minister at the end of last month.

This was the highest median prediction for a no-deal Brexit since Reuters began asking the question two years ago.

According to Daniel Vernazza, Chief International Economsit at UniCredit:

‘Until now, it was difficult to know what a Johnson-led government would do about Brexit, given his indecisiveness, unpredictability and, at times, conflicting messages on Brexit,

However, it now seems pretty clear that Boris Johnson’s strategy is to try to force through a no-deal Brexit on October 31,’

Worsening fears that there could be a general election immediately following a possible no-deal Brexit have put further pressure on Sterling.

An election, also seen as Pound negative, could follow if UK Parliament votes no-confidence in the Boris Johnson government. It would lead to even deeper political uncertainty amid the potential chaos of a no-deal Brexit.

NZD Exchange Rates Rebound as Market Trade Tensions Cool

Earlier in the week, global market headlines were dominated by the flare up in US-China trade tensions, as well as fresh fears that there could be a full-blown currency war.

As the New Zealand Dollar is a trade-correlated currency, it was highly unappealing amid the fresh trade uncertainty.

The New Zealand Dollar saw its most significant losses following the Reserve Bank of New Zealand’s (RBNZ) deeper than expected interest rate cut this week though.

The bank cut New Zealand interest rates by a shocking 50 basis points rather than the expected 25 basis points.

However, despite those factors weighing heavily on the New Zealand Dollar still, the currency rebounded today.

Amid hopes that the US and China would continue trade negotiations, as well as signs that China is attempting to prevent a currency war for now, and strong Chinese data, all made investors more willing to buy trade-correlated currencies again.

GBP/NZD Exchange Rate Forecast: Political Developments Remain in Focus despite Data

While some New Zealand and UK data will be published during Friday’s session, developments in politics and geopolitics are most likely to keep influencing the Pound to New Zealand Dollar exchange rate.

During the Asian session, New Zealand visitor data and Chinese inflation data will be published. The Chinese data, as well as any developments in US-China trade developments, could influence market trade sentiment and the New Zealand Dollar.

Reserve Bank of New Zealand (RBNZ) speculation could also be influenced if Reserve Bank of Australia (RBA) Governor Philip Lowe takes any notable shifts in tone during an upcoming speech.

The Pound’s continued weakness is due to no-deal Brexit and general election fears. Without any more optimistic UK developments, the Pound’s potential for gains are limited.

Still, if there is no notable news on Brexit or politics tomorrow, the day’s UK growth stats are typically influential and could cause Pound to New Zealand Dollar exchange rate movement.
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