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Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Dips as Market Bullishness Increases

December 29, 2020 - Written by Frank Davies

GBP/NZD Exchange Rate Under Pressure as Market Optimism Improves



A general sense of market bullishness saw the Pound to New Zealand Dollar (GBP/NZD) exchange rate kept on the back foot.

Even in the absence of any fresh economic data releases the New Zealand Dollar was able to push higher against its rival, buoyed by optimism following the approval of a fresh US fiscal stimulus package.

With investors in a generally more risk-positive outlook heading into the final days of the year NZD exchange rates were left on an uptrend, in spite of lingering doubts over the global economic outlook.

As the initial bout of positivity which greeted the agreement of a UK-EU trade deal faded this also limited the potential for any Pound gains, meanwhile.

As the UK economy still faces significant disruption in 2021, in part thanks to the ongoing Covid-19 crisis, support for GBP exchange rates generally diminished.

Doubts over UK Economic Outlook May Limit Pound Potential



Even so, the Pound may find a floor in the near term if Wednesday’s release of the Nationwide housing price index proves positive.

Evidence that the UK housing market continued to hold up during the end of the fourth quarter could offer the GBP/NZD exchange rate a temporary boost.

Although consumers look set to come under greater pressure in the months ahead, thanks to the tightening of Covid-19 restrictions, a resilient housing market may limit the downside potential of the Pound.

Even so, with the end of the Brexit transition period fast approaching worries over the health of the UK economy look set to pick up further.

As the impact on the UK financial services sector remains unclear the potential for a further bout of Pound selling lingers.

Any signs that the UK economy looks on course for another lacklustre performance in the first quarter of 2021 may drag the GBP/NZD exchange rate lower this week.

Chinese Manufacturing PMI Forecast to Offer NZD Exchange Rate Boost



On the other hand, as long as investors see cause for optimism the New Zealand Dollar could hold onto a stronger footing against its rivals.

While no fresh New Zealand economic data is set for release before the end of the year NZD exchange rates may still benefit from a general sense of market optimism.

If December’s Chinese manufacturing PMI shows an uptick on the month this may give the risk-sensitive New Zealand Dollar a boost.

Evidence of the improving health of the world’s second largest economy would offer investors fresh cause for confidence, lifting NZD exchange rates on the back of another wave of risk appetite.

On the other hand, any signs that the Chinese economy struggled to regain further momentum on the month may limit the potential for any further New Zealand Dollar gains in the near term.
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