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Federal Reserve Interest Rate Cut Bets Hit Pound to New Zealand Dollar Exchange Rate Outlook

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Pound to New Zealand Dollar Exchange Rate Sheds Weekly Gains despite Lack of NZD Support

Despite a lack of supportive news or data from New Zealand, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate has fallen back from its weekly highs. The pair’s losses are due to a combination of Brexit uncertainties and Federal Reserve speculation.

After opening this week at the level of 1.9509, GBP/NZD advanced strongly for the first half of the week and touched on a high of 1.9767.

Since then though, GBP/NZD has tumbled back down and at the time of writing on Friday was trending at the level of 1.9501, around the week’s opening levels again.

With less than a month to go until the formal Brexit date, and US-China trade tensions persisting, more volatility is likely ahead for the Pound to New Zealand Dollar exchange rate.

Pound (GBP) Exchange Rates Slide as Soft Brexit Hopes Fade

For much of the week, investors bought the Pound Sterling (GBP) on speculation that the UK government’s new Brexit plan could lead to a softer Brexit.

There was also brief speculation that UK Parliament was cautiously optimistic towards the deal.

However, EU officials expressed doubts that the deal would work, asking for more detail from the UK.

Ireland’s Prime Minister, Leo Varadkar, said:

‘I don’t fully understand how we can have Northern Ireland and the Republic of Ireland in a separate customs unions and somehow avoid there being tariffs and checks and customs posts between north and south.’

With the government’s Brexit plan in question, no-deal Brexit fears have returned. Markets generally believe Brexit will be delayed, but there are persisting fears that a no-deal outcome could still be forced instead.

New Zealand Dollar (NZD) Exchange Rates Benefit as Federal Reserve Easing Speculation Rises

The New Zealand Dollar (NZD) started the week off on a poor note, as rising Reserve Bank of Australia (RBA) interest rate cut bets combined with US-China trade tensions left investors hesitant to buy trade-correlated currencies.

However, towards the end of the week, fears that even the US could be headed towards recession returned to market focus. US manufacturing, jobs, and services data have all disappointed investors.

This has caused fresh speculation that the Federal Reserve will ease US monetary policy further, narrowing perceived monetary policy divergence between the Fed and the Reserve Bank of New Zealand (RBNZ) and RBA.

As a result, NZD benefitted from Fed speculation and a weaker US Dollar (USD) towards the end of the week, regaining its weekly losses versus Sterling.

Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Anticipating US Non-Farm Payrolls

Next week’s UK and New Zealand economic calendars are not as likely to influence the Pound to New Zealand Dollar (GBP/NZD) exchange rate as upcoming developments in politics, and even upcoming US data.

With market concerns about a possible US recession returning, traders are now highly anxious ahead of upcoming major US ecostats, including this afternoon’s US Non-Farm Payroll report.

The NFP is closely watched by markets and the Federal Reserve. If these job stats disappoint investors, US recession speculation will flare up further, Fed rate cut bets may rise.

In this situation, the US Dollar’s (USD) losses would benefit trade-correlated currencies like the New Zealand Dollar. This could leave GBP/NZD lower before the end of the week.

Looking ahead to next week, potential Brexit developments will be increasingly in focus for the Pound to New Zealand Dollar (GBP/NZD) exchange rate as October draws on.