The UK unemployment rate fell more than expected to 4.3% in the three months to September, down from 4.5% the month before, potentially increasing the likelihood the Bank of England (BoE) raising interest rates sooner.
What’s Been Happening: GBP/NZD Rebounds from 11-Month Low
The GBP/NZD exchange rate tumbled to an 11-month low at the start of last week as the BoE decision to leave interest rates unchanged continued weighing on Sterling.
Reports that the UK government may suspend parts of the Northern Ireland protocol by activating Article 16 of the agreement also dented the Pound, before concerns eased towards the end of the week.
GBP/NZD then recovered from early week losses despite UK GDP growth slowing more than expected in the third quarter to 1.3%, down from 5.5% in the second quarter.
Meanwhile, after receiving a boost from a risk-on mood driven by upbeat Chinese trade data early in last week’s session, the risk-sensitive New Zealand Dollar slipped through the week.
Risk-off trade swept markets after US inflation unexpectedly soared and weakening commodity prices dragged on NZD exchange rates.
Three Things to Watch Out for This Week
- UK Inflation Rate
Inflation jitters could soften Sterling on Wednesday as the headline rate is forecast to have risen to 3.9% in October. However, soaring inflation could increase the pressure on the BoE to raise interest rates.
- UK Retail Sales
A return to growth after six consecutive months of contraction may provide the Pound with some support at the end of the week, with a 0.5% rise expected for October.
- Central Bank Rate Hike Bets
After the UK’s better-than-expected UK employment figures today, speculation may grow that the BoE could raise interest rates sooner as data points to the economy recovering.
Meanwhile, ahead of the Reserve Bank of New Zealand (RBNZ) interest rate decision next week, investor bets on how aggressively the central bank will hike rates will likely drive movement in the ‘Kiwi’.
Pound New Zealand Dollar Forecast
The Pound New Zealand Dollar exchange rate could make further gains this week if UK data provides evidence that the UK economy is recovering, which may lead to an increased chance of the BoE raising interest rates.