The Pound New Zealand Dollar (GBP/NZD) exchange rate is subdued so far today after giving up gains it had made early in yesterday’s session despite falling UK unemployment rate to 4.5%.
Sterling has relinquished gains driven by interest rate hike hints from the Bank of England (BoE), while the New Zealand Dollar is holding its ground on rising commodity prices and New Zealand bond yields hitting their highest level since early 2019.
What’s Been Happening: Pound Strengthens on Rate Hike Expectations
GBP/NZD ended last week higher as the Pound benefited from expectations that the BoE would tighten monetary policy sooner than previously thought.
The central bank’s chief economist Huw Pill warned of growing concerns over increasing inflationary pressure, suggesting an interest rate hike could come soon.
However, Sterling’s gains were limited due to worries that the UK is facing an energy crisis as gas prices hit record highs and threaten UK heavy industry shutdowns.
Meanwhile, the New Zealand Dollar trended lower amid cautious market risk appetite, as the Reserve Bank of New Zealand (RBNZ) raised interest rates for the first time in seven years from 0.25% to 0.5%.
With the rate hike widely expected for some time, NZD failed to make gains as investors had already priced in the rise in interest rates.
Three Things to Watch Out for This Week
- UK GDP
UK GDP data for August may provide some support for Sterling, with 0.5% growth forecast. Any positive or negative surprises in the data could cause extra volatility.
- New Zealand Q3 Inflation Rate
Against the backdrop of rising energy prices, supply chain issues, and central banks responding to inflation jitters, a high third quarter inflation rate may stoke volatility in NZD.
- BoE Interest Rate Hike Stance
Following comments from BoE policymakers over the weekend that suggested interest rate rises could come sooner than expected to combat rising inflation, more insight from Monetary Policy Committee members this week may drive additional GBP movement.
Pound New Zealand Dollar Forecast: Inflation Jitters Set to Drive Volatility?
The Pound New Zealand Dollar exchange rate may experience volatility this week as UK inflation concerns drive GBP movement.
Amid soaring energy prices, renewed Brexit tensions, and hints from the BoE for tighter monetary policy, GBP investors will likely stay focused on the impact of inflation on UK economic growth.
Meanwhile, the New Zealand Dollar will remain sensitive to market risk appetite, rising yields and commodity prices, and Covid-19 developments as lockdown is extended in Auckland and the country’s vaccine rollout ramps up.