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GBP to NZD Exchange Rate Recovery Stops Short as UK Retail Sales Keep Bank of England Bets Afloat

January 17, 2020 - Written by Ben Hughes

Rising Bank of England (BoE) interest rate cut bets have remained the biggest story for Pound exchange rates this week, but the British Pound to New Zealand Dollar (GBP/NZD) exchange rate has still recovered from weekly lows due to a lack of strength in New Zealand Dollar trade. The New Zealand Dollar has been benefitting slightly from global developments, but lingering uncertainties and underwhelming New Zealand data is keeping pressure on the currency.

Since opening this week at the level of 1.9693, GBP/NZD has seen mixed and volatile movement. GBP/NZD initially trended lower on Pound weakness and touched a January low of 1.9553, but in the latter part of the week the pair was a little more resilient.

GBP/NZD briefly touched on a weekly high of 1.9750 this morning, but poor UK data meant it was unable to sustain those gains and the pair trended closer to the week’s opening levels again at the time of writing.

GBP Exchange Rates Slips Back from Recovery Attempts as Bank of England (BoE) Rate Cut Bets Persist

The Pound immediately came under pressure when markets opened this week as Bank of England (BoE) interest rate cut bets suddenly rose.

While Sterling has recovered much of the losses seen at the beginning of the week, pressure remains heavy on the British currency as BoE interest rate cut bets have only worsened throughout the week.

All of this week’s notable UK data fell short of expectations, causing speculation of a BoE rate cut as soon as this month to flare up.

Today’s UK retail sales results were notably disappointing. Instead of rebounding into the predicted 0.5% growth, retail contracted again at -0.6% month on month in December.

As BoE interest rate cut bets rise, the Pound’s potential for gains is even more limited. According to Ayush Ansal, Chief Investment Officer at Crimson Black Capital:

‘With the UK economy drifting and no sign yet of a ‘Boris bounce’ feeding through into consumer confidence, the lack of inflationary pressure could easily persuade the Bank of England that the time is right to inject some zip into the economy with a rate cut, and sterling is likely to recalibrate accordingly,’

NZD Exchange Rates Strength Limited despite Strong Chinese Data

Investors have been hesitant to move too much on the volatile New Zealand Dollar in recent sessions, despite being driven by a number of factors.

The New Zealand Dollar is being supported by global news, such as US-China trade developments and Chinese data.

As the New Zealand Dollar is a trade-correlated currency, it benefitted from news that the US and China had signed a ‘phase one’ trade deal.

Due to New Zealand’s trade relations with China, the ‘Kiwi’ was also supported by this morning’s stronger than expected Chinese data.

However, uncertainties persist in the US-China trade outlook. Many tariffs remain in place and some analysts doubt further progress is likely too soon.

On top of this, New Zealand’s latest business PMI data fell short of forecasts today. The data was expected to slow to 50.6, but instead slipped into contraction and printed at 49.3.

GBP/NZD Exchange Rate Forecast: Central Bank Speculation Remains the Focus

The past week’s New Zealand economic calendar was relatively quiet, leaving the New Zealand Dollar’s movement jittery and the outlook mixed.

With more influential New Zealand data due in the coming week and US-China trade relations potentially taking a backseat for now though, Reserve Bank of New Zealand (RBNZ) speculation could return to focus for NZD investors.

As Bank of England (BoE) interest rate cut bets are already rising in recent sessions, the Pound is likely to remain focused on BoE speculation in the coming week as well.

Tuesday will see the publication of Britain’s latest job market data, with New Zealand’s key Q4 2019 inflation rate and UK PMI projections due on Friday.

Weak UK data could increase BoE interest rate cut bets and the pressure on Sterling.

Reserve Bank of New Zealand policy speculation could soften if New Zealand’s inflation results beat forecasts, which could also lead to fresh Pound to New Zealand Dollar exchange rate losses.
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