The Pound New Zealand Dollar (GBP/NZD) exchange rate has made gains at the start of this week’s session amid concerns over the Omicron variant’s impact on global economic recovery.
GBP/NZD fluctuated through last week on Omicron uncertainty and the surprise decision from the Bank of England (BoE) to raise interest rates.
What’s Been Happening: Pound Volatile on BoE Surprise and Omicron Fears
Strong UK jobs data bolstered the Pound at the start of last week as UK unemployment fell to 4.2% in the three months up to October despite the end of the furlough scheme.
Inflation jumping to 5.1% in November also supported Sterling, before a far weaker-than-expected UK services PMI reading caused the Pound to plunge on fears over the Omicron variant.
However, the BoE’s decision to raise rates to 0.25% from 0.1% shocked markets and drove a rebound in GBP, hiking rates due to soaring inflationary pressure and healthy UK employment data despite soaring Covid-19 cases in the UK.
Meanwhile, the risk-sensitive New Zealand Dollar struggled in prevailing risk-off trade last week amid concerns over the Omicron variant.
New Zealand’s third quarter GDP reading revealing a -3.7% contraction also weakened the ‘Kiwi’ despite bettering forecasts of -4.5%.
Three Things to Watch Out for This Week
- UK Covid-19 Situation
Following the UK government’s emergency cabinet meeting yesterday, restrictions remain unchanged and Prime Minister Boris Johnson ‘reserves the possibility’ to bring in new Covid rules.
However, surging daily coronavirus infections near record highs may prompt new measures soon and in turn weigh on the Pound.
- UK GDP Q3
The finalised UK GDP reading for the third quarter could also limit Sterling strength, especially if there are any downward revisions on previous estimates of a 1.3% slowdown from 5.5% in the second quarter.
- UK-EU Post-Brexit Negotiations
After lead negotiator Lord Frost resigned last week, his replacement Liz Truss is expected to meet with EU counterpart Maroš Šefčovič this week and signs of progress may provide the Pound with some support.
Pound New Zealand Dollar Forecast
Covid-19 developments in the run up to Christmas look set to dominate Pound New Zealand Dollar exchange rate movement.
As the Omicron variant rapidly spreads around the world, souring market risk appetite will likely drive volatility in GBP/NZD.