July 9, 2020 - Written by Minesh Chaudhari
STORY LINK GBP to NZD Exchange Rate Reaches Weekly Best as Sterling Eventually Benefits from UK Stimulus News
Despite market risk sentiment rising again today, the British Pound to New Zealand Dollar (GBP/ZAR) exchange rate is testing its best levels all week. As markets show a delayed reaction to UK Chancellor Rishi Sunak’s fiscal policy plans, the Pound is advancing today. Sterling may struggle to keep recovering though, as the strong New Zealand coronavirus outlook as well as resilience in market risk-sentiment are keeping the NZD outlook fairly strong.
After last week saw GBP/NZD tumble due to resilient New Zealand Dollar strength, GBP/NZD has been rebounding somewhat this week.
GBP/NZD opened this week at the level of 1.9102. While GBP/NZD briefly slipped to a 2020 worst level of 1.9025 at the beginning of the week, the pair has been rebounding since then.
At the time of writing, GBP/NZD trends near highs of 1.9287. This is the best level for the pair all week, and also means that GBP/NZD has recovered last week’s losses.
GBP Exchange Rates Up as Markets Show Delayed Reaction to UK Fiscal Stimulus
The Pound’s movement was mixed for much of Wednesday. Pound investors were focused on UK Chancellor Rishi Sunak’s Summer Statement, a supplementary budget package to come before the main event in the autumn.
Sunak’s announcements included an anticipated stamp duty holiday, as well as plans for the government to support businesses to boost activity and hiring to come out of the coronavirus pandemic.
On the other hand though, he also gave an outline for how the UK government would wind down its furloughing scheme.
The Summer Statement was met with widely mixed reactions. Yesterday, analysts said that job loss concerns weighed on market optimism towards the other news.
However, the Pound is still seeing a jump in demand today. Analysts believe that Sterling is seeing something of a delayed reaction to the news. According to Stephen Gallo, FX Strategist at BMO Financial Group:
‘There has been a little bit of a delayed response, I think, to the fiscal story here in the UK,
If it weren’t for the Brexit factor, which is holding down the Pound, I think the pound would be significantly higher now because the UK has a much more dynamic fiscal story than the euro zone as a whole,’
Still, concerns over Brexit uncertainty and the potential for major UK job losses in the coming months are overall weighing on the Pound’s outlook. UK retailer Boots confirmed today that it was cutting 4000 jobs.
NZD Exchange Rate Losses Limited as Investors Continue to Find Risks Appealing
The Pound to New Zealand Dollar exchange rate may have seen even stronger gains today, if not for lingering risk sentiment supporting the New Zealand Dollar.
The New Zealand Dollar is a currency often correlated to market risk and trade sentiment. The currency often benefits in times of global hope for economic growth.
Due to the New Zealand government’s effective handling of the coronavirus pandemic, the New Zealand Dollar has been one of the major currencies benefitting most from hopes of a global economic recovery.
Fresh, solid signs of recovery in China, the world’s second biggest economy, have only bolstered the market’s appetite for risk today. According to Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital Markets:
‘We’ve seen a more generalised view back to riskier assets. The Chinese equity surge has been the poster child for risk-on move across the last few sessions’
GBP/NZD Exchange Rate Forecast: Coronavirus Developments Could Limit Risk-Sentiment
Investors continue to find risk-correlated assets like the New Zealand Dollar appealing this week, as market hopes for a global economic rebound from the coronavirus pandemic persist.
With the New Zealand Dollar currently among the currencies seeing most benefit from the pandemic, the Pound to New Zealand Dollar exchange rate’s potential for gains may be limited.
If the ‘Kiwi’ remains appealing, GBP/NZD may not be able to climb much higher. In fact, if global coronavirus recovery hopes continue to rise, GBP/NZD could tumble and shed more of its recent gains.
On the other hand though, if hopes of a recovery are dampened by surging coronavirus fears, safe haven demand could rise and the New Zealand Dollar could weaken.
This may also be the best chance GBP/NZD has of advancing. The Pound to New Zealand Dollar exchange rate outlook is also limited due to uncertainties over how Britain’s Brexit situation will unfold in the coming months.
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TAGS: Pound New Zealand Dollar Forecasts