Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Weakens Ahead of BoE Announcement
After making solid gains at the start of the week the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate has struggled to maintain its earlier momentum.
With investors starting to brace for the Bank of England’s (BoE) September policy decision and meeting minutes demand for Pound Sterling (GBP) generally eased.
Confirmation that BoE Governor Mark Carney will remain in post until January 2020, a seven month extension, failed to encourage any particular boost for GBP exchange rates.
With Carney still set to depart before the conclusion of the Brexit process this disappointed investors, diminishing the positive impact on the Pound.
As the BoE is widely expected to leave interest rates on hold on Thursday the potential for fresh Pound gains looks rather limited.
Global Trade Concerns Offer Limited Support to GBP/NZD Exchange Rate
Worries over the prospect of fresh US tariffs on Chinese goods were not enough to boost the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate.
While global risk appetite remained generally muted thanks to the latest threats from the Trump administration and its entrenched protectionist outlook pressure on the New Zealand Dollar (NZD) eased.
Further support for NZD exchange rates may come on the back of August’s food price index reading if signs point towards rising inflationary pressure.
Evidence that inflation is strengthening within the New Zealand economy would give the Reserve Bank of New Zealand (RBNZ) greater cause for confidence, reducing the risk of any loosening of monetary policy.
A disappointing showing, on the other hand, would leave the New Zealand Dollar vulnerable to an extended downtrend.
Brexit Uncertainty Expected to Remain Drag on Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate
Speculation over Brexit is still likely to dominate the outlook of the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate in the weeks ahead.
Even though UK and EU negotiators have shown signs of progress towards a deal, with chief EU negotiator Michel Barnier striking an optimistic note, risks remain.
As Christopher Graham, economist at Standard Chartered, commented:
‘Our core view remains that a deal will eventually be brokered between the UK and EU, but this deal will likely depart from the government’s current Chequers plan.
‘More likely is that the UK government will make further concessions to the EU, leading ultimately to a softer Brexit, but given the level of uncertainty, and the degree to which political personalities continue to dominate the debate, we cannot rule out a ‘hard Brexit’ (akin to a Canada-style free trade agreement) gaining ground.
‘There are various ways that the UK parliament can make life difficult for the government, and we think an extension of Article 50 and a leadership challenge are possible scenarios over the next few months.
‘We also cannot rule out a general election, a cliff-edge, no-deal Brexit or a second referendum; but these remain lower-risk events in our view, at least for now.’
If tensions within the Conservative Party continue to mount this could weigh heavily on the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate, with confidence in the outlook of the UK economy still fragile.