Shock UK Services PMI Decline Drags Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Lower
As the UK service sector fell into a surprise contraction the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate came under renewed pressure.
Although forecasts had pointed towards a modest uptick in service sector growth on the month the PMI instead slumped from 50.0 to 48.6.
This represents a significant slowdown for the sector that accounts for more than three quarters of the UK’s economic activity, raising the risk of a weak fourth quarter gross domestic product reading.
Coupled with a fresh decline in the manufacturing PMI this left investors with little incentive to buy into Pound Sterling (GBP) ahead of the weekend.
Thomas Pugh, an economist at Capital Economics, commented on the report:
‘Even though we think that the PMIs are probably overstating the weakness in the economy a bit, the downturn in the services PMI is especially worrying.
‘The services sector has been the stalwart of growth over the last year, but this may be a sign that the weakness in the rest of the economy is starting to creep into the economy’s largest sector.’
GBP Exchange Rates Look for Rally on Reported Retail Sales Index
Increasing worries over the health of the UK economy may keep GBP exchange rates under pressure next week, especially if political jitters linger.
However, with November’s CBI reported retail sales index expected to show a modest improvement on the month the Pound may find a temporary rallying point on Monday.
While the index looks set to remain in negative territory at -4 any uptick in sales activity could still encourage the GBP/NZD exchange rate to recover some of its lost ground.
As long as UK consumers demonstrate signs of resilience in the face of ongoing Brexit-based uncertainty and global trade tensions the mood towards the Pound is likely to improve.
Even so, the latest developments in the general election campaign could equally put a dampener on GBP exchange rates in the days ahead.
Stronger NZ Retail Sales Forecast to Shore up New Zealand Dollar (NZD) Demand
Doubts over the likelihood of an imminent US-China trade agreement have limited the potential for New Zealand Dollar (NZD) gains in recent days.
With market risk appetite generally limited by anxiety over the global trade outlook NZD exchange rates have struggled to find much in the way of traction.
The appeal of the New Zealand Dollar could pick up on Monday, however, if the third quarter retail sales figures show an acceleration.
Evidence that New Zealand consumers continued to spend in the third quarter, in spite of wider growth concerns, may improve confidence in the economic outlook.
As higher levels of consumer spending could help to offset the lingering slowdown in manufacturing any positive showing here could see the GBP/NZD exchange rate extending its slump further.
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