The Pound New Zealand Dollar (GBP/NZD) exchange rate has slipped slightly today after UK jobs data released this morning indicated UK wage growth lagged behind inflation at the end of 2021, adding to the mounting cost-of-living crisis.
GBP/NZD remains higher than last week’s level as Russia-Ukraine tensions and expectations for a more aggressive Federal Reserve drove risk-off trade.
What’s Been Happening: Pound Fluctuates on UK Growth Outlook
The Pound (GBP) fell through the first part of last week as concerns over a cost-of-living crisis in the UK causing weaker economic growth continued weakening GBP exchange rates.
Comments from Bank of England (BoE) chief economist Huw Pill also weighed on Sterling sentiment after he struck a cautious tone and warned that wages need to fall in real terms to control inflation.
But GBP exchange rates recovered later in the week as UK GDP data revealed the UK economy grew 7.5% in 2021, its fastest pace since the 1940s. However, Sterling’s upside was capped by December’s growth reading showing a -0.2% contraction and the fourth quarter coming in below forecast at 1%.
The risk-sensitive New Zealand Dollar (NZD) strengthened amid an upbeat mood in midweek before market sentiment soured on more aggressive rate hike expectations from the Fed, and escalating Russia-Ukraine tensions sparked risk-off trade.
A weaker-than-expected New Zealand manufacturing PMI, and a sixth consecutive month of contraction in the service sector PMIs also weigh on the ‘Kiwi’.
Three Things to Watch Out for This Week
- UK Inflation
Forecasts point to UK inflation having held at 5.4% in January, although a higher reading may increase concerns over the squeeze on UK household incomes, and alter BoE rate hike expectations.
- Russia-Ukraine Tensions
The threat of Russia invading Ukraine has stoked market volatility over the last week and looks set to continue despite reports of Russia moving some of its troops away from the border.
- UK Retail Sales
After December’s sharp -3.7% fall, the expected 1% increase in January may support Sterling on signs that the UK economy may have weathered the impact of the cost-of-living squeeze and the impact of Omicron.
Pound New Zealand Dollar Forecast
The Pound New Zealand Dollar exchange rate may experience more volatility this week as tensions continue to simmer over the threat Russia poses to Ukraine, and its potential disruption to global economic activity.