Pound New Zealand Dollar (GBP/NZD) Exchange Rate Gains despite Drop in UK Retail Sales
The Pound New Zealand Dollar (GBP/NZD) exchange rate shot higher overnight and is consolidating gains on Friday morning.
Despite UK retail sales unexpectedly falling sharply in December, GBP/NZD is up around 0.3% on the day’s opening levels to trade at NZ$2.0211 at the time of writing as a risk-off market mood weighs on the ‘Kiwi’.
Pound (GBP) Dented by Falling UK Retail Sales Fuelling Growth Concerns
The Pound (GBP) is coming under pressure this morning following a worse-than-expected contraction in December’s UK retail sales, which analysts suggest could mean UK economic growth weakened at teh end of 2021.
However, souring market sentiment is pushing Sterling higher against its more risk-sensitive rivals.
Retail sales slumped to a -3.7% contraction last month, instead of the -0.6% forecast, as the Omicron variant hit the UK and dented consumer confidence.
The reading indicated the steepest decline since January 2021, with shoppers doing their Christmas shopping early also appearing to account for the fall.
Heather Bovill, the Office for National Statistics (ONS) Deputy Director for Surveys and Economic Indicators, commented:
“After strong pre-Christmas trading in November, retail sales fell across the board in December, with feedback from retailers suggesting Omicron impacted on footfall.
“As Plan B restrictions in England meant more people working from home, there was a notable fall for fuel sales.”
Non-food store sales also fell particularly sharply, as the ONS outlines:
“Clothing stores and department stores reported a fall of 8.0% and 6.3% over the month and were 7.2% and 10.6% below levels in February 2020.
“The volume of household goods stores sales fell by 3.2% in December and were 1.4% below their levels in February 2020.”
However, Bovill added:
“Despite the fall in December, retail sales are still stronger than before the pandemic, with over a quarter of sales now made online”
Retail sales in December were 2.6% higher than February 2020, and were up 5.1% in 2021, which has helped limit the downside in Sterling
But the fall in retail sales has heightened concerns over UK economic growth at the end of the fourth quarter of 2021 and the start of this year, amid a looming cost-of-living crisis.
New Zealand Dollar (NZD) Slides in Risk-Off Trade
The New Zealand Dollar (NZD) is tumbling at the end the week as the souring market sentiment sweeping markets has sent the risk-sensitive ‘Kiwi’ sliding.
Fears over the global growth outlook, inflation jitters, and expectations for aggressive monetary policy tightening from the Federal Reserve are again weakening market risk appetite.
The risk-off mood has offset a better-than-expected Business NZ Performance of Manufacturing PMI in New Zealand for December that beat forecasts by coming in at 53.7, up from 50.6, and further above the 50 mark that indicates growth.
Meanwhile, the New Zealand government’s decision to temporarily close its borders to all new arrivals, including citizens and visa holders.
Concerns over the risk of the Omicron variant spreading in the country and disrupting economic activity continues to weigh on NZD sentiment.
Pound New Zealand Dollar Forecast: GBP/NZD to Extend Gains?
The Pound New Zealand Dollar exchange looks set to build on recent gains going into the weekend as persisting risk-off trade weakens NZD.
Ongoing political uncertainty fuelled by calls for UK Prime Minister Boris Johnson to resign may also have a modest impact on the Pound.
However, market expectations for a rate hike from the Bank of England (BoE) in February, UK economic growth concerns, and the threat of a cost-of-living crisis will likely remain the main drivers in GBP exchange rates.
Meanwhile, the New Zealand Dollar will be driven by shifting market risk appetite and news on Covid-19 cases in the country.