GBP/NZD Exchange Rate Strengthens amid Omicron-Driven Volatility

The Pound New Zealand Dollar (GBP/NZD) exchange rate climbed higher over the last week as Omicron-driven volatility continued causing significant market movement.

However, GBP/NZD is lower this morning as market sentiment improves, with fears easing over the risk posed by the new variant.

What’s Been Happening: GBP/NZD Strengthens despite Reduced Rate Hike Bets

The Pound benefitted from risk-off trade against the risk-sensitive New Zealand Dollar last week as Omicron variant concerns lowered demand for riskier assets.

However, Sterling faced headwinds as fears over the new variant and high Covid-19 case rates in the UK reduced expectations for the Bank of England (BoE) to raise interest rates at its December policy meeting.

Negotiations between the UK and EU over the Northern Ireland protocol also limited the Pound’s gains as talks remain at an impasse.

Meanwhile, the New Zealand Dollar came under pressure throughout the week amid a risk-off mood driven by Omicron fears.

NZD has received some support at the start of this week, however, due to an improving mood and Reserve Bank of New Zealand (RBNZ) Assistant Governor Christian Hawkesby saying that a firmer New Zealand Dollar will help the bank achieve its objectives.

Three Things to Watch Out for This Week

  1. Omicron Variant Developments

With fears easing on early reports that the Omicron variant causes milder symptoms and is less deadly that others, further evidence may boost risk appetite and support risk sensitive assets such as the New Zealand Dollar.

  1. UK GDP

The Pound could come under pressure at the end of the week as forecasts point to GDP growth slowing to 0.4% in October, down from 0.6% in September.

  1. Bank of England Rate Hike Speculation

As a rate hike from the BoE looks increasingly unlikely, any comments from the central bank’s policymakers that hint at when rising rates could be likely would drive movement in Sterling.

Pound New Zealand Dollar Forecast

With market fears easing over the Omicron variant, improving market mood may allow the New Zealand Dollar to recover its losses against the Pound.

Data and developments in China will also likely influence market mood, with strong data at the start of the week supporting NZD but Chinese property giant Evergrande teetering on the brink of default could quickly sour the mood.

Meanwhile, in the absence of notable UK data releases ahead of UK GDP, the Pound will likely remain sensitive to BoE rate hike bets and post-Brexit trade talks headlines.

Andrew Roberts

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