The Pound to New Zealand Dollar exchange rate (GBP/NZD) struck a fresh all-time record low of 1.7926 yesterday as Sterling momentum collapsed following a soft Manufacturing PMI report for March.
The latest report from Markit Economics showed that the UK Manufacturing Industry shrunk for a second consecutive month during March. The Purchasing Managers Index improved slightly from February’s score of 47.9, but the disappointing print of 48.3 was below the projected reading of 48.7.
The soft dataset yesterday, which also included a drop-off in Mortgage Approvals from 54.2K to 51.7K, sent Sterling tumbling by an enormous -2.2 cents against the New Zealand Dollar to an all-time low of 1.7926 (GBP/NZD). The Pound struggled against all of its major currency peers yesterday shrinking by -1.2 cents against the US Dollar (GBP/USD), -0.7 cents against the Euro (GBP/EUR), -1.6 cents against the Canadian Dollar (GBP/CAD), and -1.3 cents against the Australian Dollar (GBP/AUD).
The lagging Manufacturing Sector is now thought to have reduced British economic output by -0.1% during the first quarter. The fear of another three months of declining GDP weighed on the Pound, as traders contemplated the possibility that Britain could have slid into a triple-dip recession at the start of 2013. However, the Manufacturing Industry only accounts for around 10% of the UK economy, whereas the dominant Service Sector makes up a far more significant 70%.
Rob Dobson of Markit Economics said: “The onus is now on the far larger Service Sector to prevent the UK from slipping into a triple-dip recession”. Indeed, a report from the Office of National Statistics showed that Services expanded by 0.3% in January – its fastest acceleration for five months – and the PMI report for March is set to show a robust score of 51.5 when it is released on Thursday. The official verdict on UK first quarter growth will be released on April 25 and if Service Output prints according to forecasts then it is probable that Britain will avoid its third recession in five years.
John Longworth, Director-General of the British Chambers of Commerce argued that the UK is on the right track to recovery, but that more needs to be done:
“Businesses up and down the country are working hard to drive the economy, create jobs and export, but they cannot accelerate this process alone. Recent welcome steps to improve business access to finance, including the commitment to create a business bank must be forced through without bureaucratic delays”.
In terms of risk sentiment, the New Zealand Dollar and the Australian Dollar are currently performing well on the back of the Reserve Bank of Australia’s decision to refrain from further monetary loosening. The RBA maintained its benchmark interest rate of 3.0% stating that “downsize risks to global growth have decreased and growth in China has stabilized”.
The New Zealand Dollar also benefitted from a 14.2% rise in dairy prices, marking the third consecutive double-digit increase in as many months. Global Dairy Trade prices are growing as traders compete for a shortage of milk powder due to the drought in New Zealand.
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