The Pound New Zealand Dollar (GBP/NZD) exchange rate slid to an almost two-month low as soaring living costs and turbulent politics dominated the market.
What’s Been Happening: Pound Weakens as Inflationary Pressures Grow
The Pound started the week on the back foot as the Federation of Small Businesses (FSB) warned that half a million small businesses could fold under the pressure of soaring costs.
Further weighing on Sterling was the release of worrying lending data from the Bank of England (BoE). Mortgage approvals dropped as credit card debt grew, highlighting the cost-of-living crisis gripping the country.
Elsewhere, the New Zealand Dollar was pressured at the start of the week as business confidence slumped to the lowest point since Covid first hit the country in April 2020.
A continued contraction in the Chinese manufacturing sector soured market sentiment, swaying investors away from the risk-sensitive ‘Kiwi’.
With the Platinum Jubilee weekend thinning trading conditions, the Pound was left to trade on market sentiment, and with the number of Johnson critics growing by the day, sentiment was dwindling. Speculation over a potential vote of no confidence may have weighed on the Pound heading into the long weekend.
Three Things to Watch Out for This Week
- Chinese Inflation
Markets forecast China’s inflation rate to drop to 2%, down from last month’s reading of 2.1%, the highest since November 2021. With lockdown restrictions easing and a slow return to normal service, an expected moderate recovery for China could mean a boost for the New Zealand Dollar.
- UK Political Stability
With Monday’s vote of confidence in Boris Johnson failing to quash questions over the future of his premiership, ongoing political uncertainty could weigh on the Pound through the week.
- RBA Interest Rate Decision
With the Reserve Bank of Australia surpassing expectations of a 25bps rate hike to bring the Official Cash Rate (OCR) to 0.85%, a 50bps rise. A boost to the Aussie could lend further support to the Kiwi.
Pound New Zealand Dollar Forecast
Looking ahead, the GBP/NZD exchange rate could be left to trade on market sentiment as data remains relatively thin on the ground.