After rallying close to a five-month high, the Pound to New Zealand Dollar exchange rate has shed most of its recent gains in the past couple of sessions thanks to Brexit uncertainties and the latest New Zealand inflation stats.
The interbank GBP/NZD exchange rate advanced from 1.8433 to 1.8514 last week but has since fallen from its best levels.
Pound (GBP) Strength Limited on Concerns of Brexit Deadlock
Despite Britain’s September Consumer Price Index (CPI) results supporting the case in favour of a Bank of England (BoE) rate hike, the Pound continued to fluctuate on Tuesday on persistent Brexit jitters.
Britain’s September inflation figures came in at 3% year-on-year (a five-year high) and 0.3% month-on-month as expected.
This bolstered hopes that the BoE will increase borrowing costs when it gathers in November, despite analyst concerns that Britain’s economy isn’t strong enough to support higher rates.
However, as the results were expected, the Pound’s outlook was unchanged and Brexit concerns kept pressure on the currency.
While UK Prime Minister Theresa May headed to Brussels on Monday in an attempt to break a deadlock in UK-EU Brexit negotiations, the trip seemingly failed to help progress the process.
Concerns have also emerged that if UK-EU talks don’t start getting somewhere soon, Brexit negotiations could completely fall through and the UK government could walk away with a ‘hard Brexit’.
Still, Theresa May and EU Commission President Jean-Claude Juncker issued a joint statement on Tuesday claiming that negotiations would accelerate in the coming months.
New Zealand Dollar (NZD) Strengthens on NZ Inflation Report
After underperforming in recent sessions the New Zealand Dollar was given a boost on Tuesday as New Zealand’s Q3 Consumer Price Index (CPI) results beat expectations.
New Zealand inflation was forecast to have improved from 0% to 0.4% quarter-on-quarter but instead rose to 0.5%.
Meanwhile, yearly inflation advanced from 1.7% to 1.9%, beating forecasts of a rise to 1.8%.
Still, the risky New Zealand Dollar’s gains were limited due to the strength of the US Dollar (USD) and high Federal Reserve interest rate hike bets.
Analysts perceived the inflation results as having little notable impact on the Reserve Bank of New Zealand’s (RBNZ) policy plans.
GBP/NZD Forecast to React to UK Wage Data
While Tuesday’s UK inflation data failed to take market attention away from Brexit concerns, it’s possible that Wednesday’s UK job market report could inspire Pound movement if it surprises.
UK jobs data from the three months to August will be published, including employment change, unemployment rate and wage growth figures.
The Bank of England (BoE) has repeatedly warned in recent months that Britain’s subdued wage growth is harming the economy, so an uptick in average earnings would be Pound-supportive.
However, analysts currently predict that growth in UK wages without bonuses will have slipped from 2.1% to 2% while growth in earnings with bonuses will remain at 2.1%.
An at or below forecast result could weigh on demand for the Pound and send GBP/NZD lower.