Commentary from various Bank of England (BoE) policymakers has increased volatility for GBP exchange rates in recent weeks.
A slightly more upbeat assessment from Governor Mark Carney encouraged renewed speculation that the BoE could raise interest rates sooner rather than later. However, while this helped to boost the Pound against its rivals, the currency struggled to hold a bullish trend for long.
The majority of the Monetary Policy Committee (MPC) remains distinctly dovish in outlook, with most policymakers likely to oppose an interest rate hike if domestic data continues disappointing in coming months.
Demand for the New Zealand Dollar faltered in the wake of a modest dip in prices at the latest Global Dairy Trade auction, meanwhile.
This slight weakening undermined confidence in the outlook of the domestic economy given the significant role of the dairy industry. The commodity-correlated currency was also weighed down as risk appetite softened in response to a better-than-expected US ISM manufacturing index.
Disappointing UK Data Undermined Likelihood of Imminent BoE Rate Hike
The GBP NZD exchange rate weakened sharply ahead of the weekend on the back of another raft of weak UK data.
Investors were not impressed to find that May’s trade and production figures had all fallen short of forecast, pointing towards continued softness within the domestic economy.
As the trade deficit widened further than anticipated this also raised questions as to whether the post-referendum weakness of the Pound had any positive impact.
Altogether this did not paint an encouraging picture for Sterling, given that Brexit uncertainty is likely to weigh on conditions for some time to come.
Even so, the New Zealand Dollar struggled to hold onto its gains against the Pound on Monday as risk appetite remained rather muted.
As China’s consumer price index failed to rise in June as forecast the appeal of higher-yielding assets weakened, with the health of the world’s second largest economy still looking somewhat fragile.
With global commodity demand likely to weaken as the Federal Reserve looks set to raise interest rates again before the end of the year, the ‘Kiwi’ could remain under pressure in the medium term.
Stronger Wage Growth Could Boost Sterling
Wednesday’s raft of UK labour market data is expected to provoke fresh volatility for the Pound.
While the chances of an imminent BoE rate hike have eased significantly, investors could still be encouraged if wage growth proves stronger than forecast.
An improvement in average weekly earnings could ease worries over the outlook for domestic consumers and diminish the threat of a significant slowdown in spending.
Even though wages are unlikely to catch up to inflation in the near future, a strong showing here could still encourage renewed bets on the possibility of the BoE taking action.
Demand for the ‘Kiwi’ could pick up if the ANZ Truckometer for June points towards a higher level of inflationary pressure within the New Zealand economy.
If inflation continues to accelerate this could increase the odds of the Reserve Bank of New Zealand (RBNZ) adopting a more hawkish outlook, to the benefit of the New Zealand Dollar.
However, if the latest consumer confidence survey and manufacturing PMI results undermine optimism in the health of the domestic economy the GBP NZD exchange rate could find another rallying point.