The Pound New Zealand Dollar (GBP/NZD) exchange rate has slipped slightly so far this week amid a more upbeat market mood.
GBP/NZD refreshed a 20-month high last week while fluctuating amid UK political uncertainty, the Bank of England (BoE) raising interest rates, and concerns over a UK cost-of-living crisis.
What’s Been Happening: Pound Volatile on UK Growth Outlook Concerns
The Pound (GBP) came under pressure at the start of last week amid the ongoing furore over Downing Street lockdown breaches and speculation Conservative MPs will attempt to oust Prime Minister Boris Johnson with a vote of no confidence.
Sterling fluctuated later in the week as the BoE appeared to adopt a more hawkish tone while raising interest rates to 0.5% from 0.25% and signalling a start to quantitative tightening.
However, against the backdrop of the threat of a cost-of-living crisis, the central bank’s forecast of ‘slow to subdued’ UK economic growth, and inflation peaking above 7% around April weighed on the Pound.
Meanwhile, the risk-sensitive New Zealand Dollar (NZD) moved in line with shifting market risk appetite for much of last week, with expectations for aggressive monetary policy from the Federal Reserve causing fluctuations in market mood.
However, data revealing the New Zealand unemployment rate fell to an all-time low of 3.2% in the fourth quarter of 2021 provided the ‘Kiwi’ with support in midweek trade. The figures may give the Reserve Bank of New Zealand (RBNZ) more reason to hike rates faster.
Three Things to Watch Out for This Week
- UK GDP Data
With a -0.6% contraction expected in December, concerns over UK economic growth coming into 2022 may weigh on GBP exchange rates.
- UK Political Developments
Increasing uncertainty surrounding the future of UK Prime Minister Boris Johnson may drive volatility in the Pound again this week, as MPs await the findings of the police investigation into Downing Street parties.
Developments in Northern Ireland talks may add volatility, with UK-EU negotiations set to resume and attempts to prevent Stormont’s collapse ongoing following DUP protests at the protocol.
- Central Bank Rate Hike Bets
Combined with the RBNZ interest rate decision at the end of February, shifting market risk appetite driven by investors anticipating how aggressively the Federal Reserve and European Central Bank (ECB) will raise interest rates will likely drive movement in GBP/NZD.
Pound New Zealand Dollar Forecast
The Pound New Zealand Dollar exchange rate may fluctuate again this week, but remain near recent highs as investors bet on major central bank monetary policy tightening.
At the same time, UK GDP released at the end of the week may dent Sterling sentiment due to worries over the UK’s economic growth outlook.