Pound New Zealand Dollar Weekly Forecast: GBP/NZD Exchange Rate Hits 16-Month High

The Pound New Zealand Dollar (GBP/NZD) exchange rate is holding at a 16-month high at the start of this week’s session after jumping through the latter part of last week.

Optimism that the UK economy will avoid significant damage from soaring Covid-19 cases boosted the Pound, while the New Zealand Dollar continues to come under pressure from Fed-driven risk-off trade.

What’s Been Happening: Pound Jumps on UK Economic Optimism

The Pound surged last week on optimism that the UK economy will avoid serious disruption from the latest wave of Covid-19 infections.

With the UK government so far ruling out tighter restrictions and the UK’s impressive booster vaccination programme, economic optimism grew and investor bets increased for the Bank of England (BoE) to raise interest rates at its February policy meeting.

Meanwhile, the risk-sensitive New Zealand Dollar tumbled last week following the release of December’s Federal Open Market Committee (FOMC) meeting minutes and concerns over the global growth outlook.

Market sentiment soured as the Federal Reserve signalled a more aggressive cycle of monetary policy tightening than previously expected, which in turn weighed on market risk appetite and the New Zealand Dollar.

Three Things to Watch Out for This Week

  1. UK Covid-19 Situation

Signs of the UK health services managing Covid-19 hospitalisations and avoiding stricter measures may provide evidence that the country’s economic activity will remain largely unaffected, and in turn increase expectations for another rate hike from the BoE in February.

  1. Market Risk Appetite

With Federal Reserve policymakers speaking in the US Senate and US inflation data released this week, indications that the Federal Reserve will aggressively tighten monetary policy and raise interest rates may fuel risk-off trade this week.

  1. UK GDP

Forecasts point to UK GDP growth for November rising 0.4%, up from 0.1% in October, potentially providing Sterling support.

Pound New Zealand Dollar Forecast

The Pound New Zealand Dollar exchange rate may extend its gains above key levels this week as the Pound continues to receive support from UK economic optimism and BoE rate hike bets.

However, threats of the UK government activating Article 16 of the Northern Ireland protocol could sour UK-EU post-Brexit talks and weigh on GBP sentiment.

Meanwhile, market jitters driven by the Federal Reserve may drag on NZD exchange rates through the week.

Andrew Roberts

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