GBP/NZD Weekly Forecast: Pound Edges Higher on UK Economic Optimism

The Pound to New Zealand Dollar exchange rate has edged today as optimism persists over the UK’s economic recovery after the CBI distributive trades index, which measures the health of the retail sector, hit its highest level since June 2018.

Meanwhile, NZD exchange rates have weakened due to safe-haven USD demand, which is weighing on the risk-correlated New Zealand Dollar.

Last Week: Sterling Slumps despite Strong UK Data

The Pound had been steady against the New Zealand Dollar at the beginning of last week as markets were buoyed by the UK’s economic recovery from coronavirus.

However, Sterling then fell throughout the week on profit taking. Despite stronger-than-expected retail sales and flash UK PMI data released at the end of the week, the Pound failed to find any meaningful support.

At the same time, the risk-correlated New Zealand Dollar benefited from a slight uptick in inflation and a pullback in the US Dollar and the Pound’s slump, with a positive market mood helping to bolster NZD for much of the week.

Three Things to Watch Out for This Week

  • New Zealand Business Confidence Index

The release of the final New Zealand business confidence index on Wednesday could cause some concern for NZD investors as the data is expected to confirm sentiment dropped to its lowest level since October 2020 amid new economic concerns.

  • Federal Reserve Interest Rate Decision

The Fed’s latest interest rate decision could drive movement in GBP/NZD as, although rates are expected to remain at 0.25%, a continued dovish outlook from the Fed could weaken the safe-haven US Dollar, supporting risk-on trade and allow the risk-sensitive ‘Kiwi’ to push higher.

  • Coronavirus Developments

As those aged 42 and over are expected to be invited for their coronavirus vaccine as early as next week in the UK, and cases in India recording over 300,000 for the sixth day in a row, any developments regarding the coronavirus pandemic and the global economic outlook will continue to drive movement in the GBP/NZD exchange rate.

GBP/NZD Outlook

This week’s economic calendar is quieter for the Pound and New Zealand Dollar, which will likely leave global risk sentiment and coronavirus developments as the main drivers of movement.

Georgina Clissold

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