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The pound is forecast to stay under pressure against the New Zealand dollar in the coming days.
The pound to New Zealand dollar conversion (GBP/NZD) fell 0.60% on Friday, thanks largely to some genuine Kiwi strength.
NZ's dollar rose across the board in response to some welcome survey data that suggested the economy was turning a corner, and better days lay ahead.
The idea is that this lessens the odds of another rate cut at the central bank, providing some support to New Zealand interest rates and the currency.
The New Zealand manufacturing PMI rose to 51.4 from an upwardly revised 50.1, as New Zealand recovers from prior weakness.
Business NZ says the survey confirms emerging "signs of life" as four of the five sub-index values were in expansion during October, led by New Orders (54.9), which showed its highest level of expansion since August 2022.
GBP/NZD dipped to as low as 2.31 before staging a mild recovery, and the pair is at 2.3226 at the time of writing on Monday.
The near-term charts are relatively opaque, with the 21-day exponential moving average (EMA) offering some support at 2.3191 over the last couple of days. While above here, the consolidative sideways tone can extend.
The limits of this consolidation is the 2.33-2.34 zone, which is layering on some resistance, while dips to 2.31 won't be a surprise. So it's a bit of an uninspiring setup for the next couple of days.
However, expect things to get moving on Wednesday when the UK releases inflation figures for October. Here, a reading of 3.6% is expected, down from September's 3.8%. This is consistent with disinflationary conditions setting in, opening the door to further Bank of England rate cuts.
A steady lowering of the UK's future interest rate path by investors has weighed on the pound of late, and it can come under further pressure if inflation surprises to the downside.
Beyond the inflation numbers, sterling is shaky and will stay shaky right through to next Thursday, when the budget is finally announced.
We've had weeks of speculation and briefings, which came to a head last Friday when it was suggested a planned income tax hike was to be shelved.
This caused some nervousness in a market worried that the Treasury wouldn't be able to find the funds to close the budget deficit. However, a series of counter-briefings were then issued to steady market nerves.
The message, here, is in the medium: we're not so much concerned about the details anymore; rather, it's the bigger picture that is worrying: a government that lacks a coherent strategy rarely delivers positive outcomes.
"The leaked decision, overnight on Thursday, not to go ahead with an income tax rate hike was perceived by some as a panic move. From the market’s perspective, the reliance instead on the ‘smorgasbord’ approach of raising revenue via a larger number of smaller tax bases can be seen as a potentially riskier route to generating the revenue needed to hit the fiscal target," says a market briefing from Lloyds Bank.
Expect GBP/NZD rallies to be contained in this environment, and we suspect the easier direction of travel is lower.
We will assess the outlook once the budget has been passed and the market has arrived at a verdict. There's still a chance that the pound rallies in relief into year-end as the uncertainty passes.
Until then, it'll be on the defensive.