BCC Downgrades UK Growth Forecasts – Pound New Zealand Dollar (GBP/NZD) Exchange Rate Falls
The outlook for the Pound New Zealand Dollar (GBP/NZD) exchange rate grew slightly gloomier on Monday as investors reacted to news that the British Chambers of Commerce (BCC) has downgraded its growth forecasts for the UK.
Fearing a fall in consumer spending, business investment and trade, the group argued that Britain is currently trapped in a stupor of Brexit-related uncertainty and facing future pressure as global trade relations deteriorate.
Because of this, the BCC downgraded the 2018 GDP growth outlook from 1.4% to 1.3%, and the 2019 forecast from 1.5% to 1.4%.
Adam Marshall Director General of the BCC shared his reasoning:
‘A decade on from the start of the financial crisis, the UK now faces another extended period of weak growth amidst a backdrop of both domestic and global uncertainty’.
‘With firms facing ongoing Brexit uncertainty, increasing global protectionism and instability in some parts of the world that will impact on costs and profits, now is the time for more robust action to support business confidence and investment’.
This news had an immediate effect on the Pound, sending it lower against the New Zealand Dollar even with the ‘Kiwi’ Dollar struggling in light of weakening market risk appetite.
New Zealand Dollar (NZD) Exchange Rates Limited by Market Risk Aversion
The medium-term outlook for riskier commodity currencies like the New Zealand Dollar and the Australian Dollar remains one of weakness, with the tit-for-tat trade tariff measures between the US and China destabilising the global market and sending investors fleeing to safe-haven investments.
This war of words escalated on Friday, when the Trump administration approved fresh tariffs targeting an extra $50bn in Chinese imports, and on Monday, when Chinese state media attacked the White House with a series of complaints about the measures.
China too, has proposed tariffs on more than 500 categories of US goods, but it remains to be seen whether they will actually follow through, or whether this standoff will simply remain a standoff.
Ultimately, the US has repeatedly cited the need to achieve fairer trade, attacking China’s questionable use of US intellectual property and their substantial trade surplus, whilst considering fair trade measures a matter of national security.
Combined, this news limited the upward potential of the ‘Kiwi’ Dollar.
BoE Rate Decision Looms – What can we expect for the Pound New Zealand Dollar (GBP/NZD) Exchange Rate?
Looking ahead, investors are currently preparing for the Bank of England (BoE) June rate decision, due on Thursday.
Whilst investors are not expecting a rate rise at this meeting, they are hopeful that the central bank will adopt a hawkish tone in its accompanying statement, or that BoE Governor Mark Carney will lay the groundwork for a rate rise in August this year.
The bank might point to the strength of the UK’s labour market and the economic recovery in Q2 this year as reason for tighter monetary policy, or they might remain tight-lipped, refusing to give much away until more data is released.
On the data front, this week will include the global dairy trade price auction, the results of which could knock the New Zealand Dollar up or down.