Pound (GBP) Struggled to Capitalise on Better-than-Expected UK GDP
With risk appetite more limited on Thursday in the wake of some positive US data the appeal of the New Zealand Dollar (NZD) weakened. Further downside pressure came from September’s New Zealand trade data, which proved decidedly disappointing. While imports were found to have risen further than forecast this was coupled with a weaker level of export growth, resulting in a widening of the trade balance deficit. This did not seem to bode overly well for the strength of the domestic economy, encouraging investors to pile out of the ‘Kiwi’.
Some measure of confidence returned to the Pound (GBP), meanwhile, as the third quarter UK GDP report surprised to the upside. Rather than slowing from 0.7% to 0.3% on the quarter as forecast the measure instead clocked in at 0.5%. While this better-than-expected result initially boosted Pound exchange rates across the board, though, these gains were rather short-lived as the details of the report proved a little less encouraging. As domestic growth remained entirely reliant on the service sector investors remain nervous of the prospect for further weakening down the road, once prolonged Brexit uncertainty starts to weigh on the economic outlook.
GBP NZD Exchange Rate Forecast: High Pricing of RBNZ Rate Cut Could Limited ‘Kiwi’ Weakness
Even so, investors remain relatively confident that the Bank of England (BoE) will not opt to enact further monetary loosening measures at its November policy meeting. This should limit the bearish pressure on Sterling in the coming week, although volatility for the Pound New Zealand Dollar (GBP NZD) exchange rate is still likely around the announcement. Should policymakers continue to adopt a dovish tone then the Pound is expected to remain soft, as Tim Riddell, research analyst at Westpac, noted:
‘BoE may not add more QE on 3 Nov, but the level of uncertainty overhanging the economy (n.b. poor CBI trends) should keep BoE’s accommodation stance and easing bias firmly in place. As previously noted, GBP weakness should persist into the government’s Autumn Statement (23 Nov) and squeezes are likely to be limited.’
However, the GBP NZD exchange rate is likely to find support in the shape of ‘Kiwi’ weakness ahead of the Reserve Bank of New Zealand’s (RBNZ) final meeting of 2016. Policymakers are widely expected to cut interest rates once again in response to low levels of domestic inflation. Should the RBNZ indicate that it expects to maintain an easing bias in coming months this could weigh heavily on the New Zealand Dollar. Nevertheless, the gains of the GBP NZD exchange rate could be limited given the already high pricing of a rate cut factored into the New Zealand Dollar.
Current Interbank Exchange Rates
At the time of writing, the Pound New Zealand Dollar (GBP NZD) exchange rate was trending narrowly around 1.71, while the New Zealand Dollar Pound (NZD GBP) pairing was trending lower at 0.58.
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