The Pound New Zealand Dollar (GBP/NZD) exchange rate slumped to near multi-month lows last week after the Bank of England (BoE) poured cold water on expectations of an aggressive tightening cycle.
What’s Been Happening: GBP/NZD Plunges on Dovish BoE Hike
The risk-sensitive New Zealand Dollar (NZD) was initially on the back foot last week. China enforced large-scale lockdowns in response to rising Covid cases, which weighed on risk appetite in Asian markets.
However, news that Beijing would roll out more support for the economy cheered investors. As a result, NZD regained ground.
Meanwhile, the Pound (GBP) firmed early in the week as apparent progress in Russia-Ukraine peace talks boosted the UK currency.
Mixed jobs data then saw Sterling edge lower against a stronger New Zealand Dollar. The UK unemployment rate beat forecasts, falling by 0.2 percentage points. However, this was partly due to an alarming rise in people leaving the labour force.
GBP/NZD then tumbled to near multi-month lows on Thursday after the BoE’s dovish rate hike. Although it raised the Bank Rate by 25 bps, the BoE struck an unexpectedly dovish tone in its forward guidance.
A mixed market mood at the end of the week caused GBP/NZD to waver, with Sterling unable to recoup its losses.
Three Things to Watch Out for This Week
- UK Inflation
The UK’s latest CPI on Wednesday is forecast to rise to 5.9%. If it exceeds expectations, it could raise the likelihood of more rate hikes from the BoE, thereby boosting the Pound.
- UK Spring Budget
Also on Wednesday, Rishi Sunak will unveil the spring budget. With the UK facing a cost-of-living crunch, markets and economists alike will be paying close attention to the Chancellor’s plans.
- Risk Appetite
A lack of data coming out of New Zealand could see the ‘Kiwi’ trade primarily on risk appetite. An upbeat mood in Asian markets would likely support NZD.
GBP/NZD Forecast
This week brings a handful of potentially market-moving events, all while the war in Ukraine rages on. Therefore, GBP/NZD could see more volatility.