Pound New Zealand Dollar Weekly Forecast: GBP/NZD Strengthens on UK Optimism

The Pound New Zealand Dollar (GBP/NZD) exchange rate is consolidating the gains it made over Christmas as markets fully reopen in the first week of 2022.

Optimism that the UK may limit disruption to economic activity amid the surging wave of global Covid-19 cases compared to other countries has bolstered Sterling.

Meanwhile, contrasting news on the Omicron variant has driven volatility in the New Zealand Dollar.

What’s Been Happening: Pound Buoyed by UK Measures and Vaccinations

The Pound (GBP) climbed in thin post-Christmas trade as the UK government’s decision not to tighten restrictions before the New Year boosted GBP exchange rates despite UK coronavirus infections soaring to record highs.

News that the UK’s booster vaccination programme met its target of offering all eligible UK a Covid-19 booster vaccine by the end of the year further supported Sterling.

Meanwhile, the New Zealand Dollar (NZD) experienced volatility on market risk appetite and headlines over developments with the Omicron coronavirus variant.

News of another real-world study on data from South Africa that suggested Omicron causes fewer hospitalisations fuelled risk-on trade that supported the risk-sensitive ‘Kiwi’,

However, reports of the emergence of the Omicron variant in New Zealand limited NZD.

Three Things to Watch Out for This Week

  1. UK Covid-19 Developments

The threat of tighter restrictions in the UK still looms despite Prime Minister Boris Johnson saying measures will remain unchanged.

However, daily infections at record highs, rising hospitalisations, and disruption to businesses due to increased staff absences could lead to volatility in GBP.

  1. Finalised UK Services PMI

Forecasts point to December’s UK services PMI confirming a slowdown in activity amid Omicron-driven consumer fears, although any downward revision in the index due to declining confidence in hospitality and retail over Christmas may weigh on the Pound.

  1. Market Risk Appetite

With cases of the Omicron variant sweeping countries around the world, any disruption caused to the global economic growth outlook could weigh on the risk-sensitive New Zealand Dollar.

At the same time, signs of Omicron appearing to cause less severe illness than the Delta variant may fuel risk-on trade and a rally in risk-sensitive currencies.

Pound New Zealand Dollar Forecast

The Pound New Zealand Dollar exchange rate may continue to push towards its highest levels since August if the UK government is able to hold off introducing restrictions and the pressure of soaring Covid-19 cases and hospitalisations remains manageable.

Andrew Roberts

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