Pound + NZ Dollar Exchange Rates Under Pressure, US Dollar and Euro Remain Dominant on the Forex Markets

The NZ Dollar plunged in response the RBNZ’s “dovish tightening” as the authorities indicated a pause in the tightening cycle that has taken the cash rate to 3.5%.  

Disappointing UK retail sales have weighed on the GBP and some believe the pound euro rate risks slumping a little more near-term.  

Not even news that the UK economy is now bigger than it was prior to the recession has aided the cause of the pound sterling.

Major FX, today's exchange rates:

• The pound to euro exchange rate is 0.03 pct in the red at 1.2615. The rate hit a high of 1.2700 earlier in the week.
• The pound to US dollar exchange rate is 0.11 pct lower at 1.6968. That the 1.700 level has been broken down is significant.
• The euro to dollar rate is 0.08 pct lower at 1.3453.
• The New Zealand dollar to US dollar exchange rate is 0.36 pct lower at 0.8544.

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The pound sterling exchange rate today: GBP at risk of further falls

Positive news for the UK this morning, as second quarter GDP figures showed an 0.8% increase, with the UK economy now at its biggest size since the Recession.

The FTSE 100 rose after the good news and is currently up 4.47 at 6,825.93, however the reaction in the sterling exchange rate complex has been decidedly less emphatic.

The pound has hardly reacted to the news largely because financial markets had forecast the GDP figure perfectly; surprises move the market.

Hurting sterling was the mid-week release of the July Bank of England monetary policy minutes which showed the Bank is not ready to raise interest rates.

UK retail sales on Thursday also missed expectations.

"Disappointing UK retail sales have weighed on the GBP modestly and we think EURGBP risks rallying a little more near-term," says Shaun Osborne at TD Securities.  

UK retail sales ex-autos unexpectedly contracted by -0.1% in month to June, pulling the retail sales growth down to 4.0% (vs. 4.7% last) on yearly basis. The retail sales including autos slowed from 3.9% to 3.6% y/y.

The pound to dollar exchange rate (GBP/USD) is now resting on support at 1.7, a break of which could see the pair fall quickly.

New Zealand dollar falls but is still wildly overpriced

Despite the decline in the NZD today the currency is still richly priced; on a trade weighted basis the Kiwi is still at highest levels since 2008; this is more than 40% appreciation since 2009 down spike.

The RBNZ cut its OCR by an additional 25 basis points at July 24th meeting, with significantly less hawkish accompanying statement.

The RBNZ Governor Wheeler said that the bank will suspend the rate hikes given the “unjustified and unsustainable” level of kiwi and the moderate inflation. “With the exchange rate yet to adjust to weakening commodity prices, […] there is room for significant fall” said Wheeler.  

A “period of assessment” is needed according to Wheeler before adjusting the interest rates back to “more neutral” levels.

Euro and US dollar are currency market winners

The US dollar exchange rate complex continues to enjoy a period of stability and quiet appreciation.

The US calendar is relatively light with only jobless claims and New Home sales on the docket, but if the data surprises to the upside they may provide a small amount of fuel for USD.

In Europe flash PMI data was mixed with France once again disappointing the market with reading of 47.6 versus 48.5 on the manufacturing side.

The euro rallied after it was shown that Frenchservices surprised to the upside rising to 50.4 from 48.9 expected.

Further gains came after it was shown that in Germany both components did better than forecast with services especially strong at 54.4 versus 52.7, "part of the gain may have been due to the World Cup interest which no doubt helped the retail sector this month," says Boris Schlossberg at BK Asset Management.

Commenting on the outlook for the euro Schlossberg says:

"The surprisingly strong PMI readings which so far show no serious fallout from the geopolitical tensions in the region, helped boost the euro which popped back above the 1.3450 level to hit a high of 1.3480.

"The pair remains in strong downtrend, but may have reached a bottom for the week, especially if tomorrow's IFO report does not disappoint and kicks in a short covering rally that takes the pair above the 1.3500 mark."