The Pound New Zealand Dollar (GBP/NZD) exchange rate hit a fresh eight-month high this week after the government binned the mini-budget. However, the pair then retreated sharply after New Zealand inflation exceeded forecasts.
At the time of writing, GBP/NZD is trading at around NZ$1.9961, roughly 0.5% from today’s opening levels.
What’s Been Happening: GBP/NZD Surges amid Screeching Government U-Turn
The Pound (GBP) strengthened against the New Zealand Dollar (NZD) at the start of last week’s trade. News that Chancellor Kwasi Kwarteng would bring forward his fiscal plan bolstered GBP, while a downbeat market mood hurt the risk-sensitive ‘Kiwi’.
The pair experienced some volatility as the week went on amid a shifting market mood and uncertainty over the Bank of England’s (BoE) bond market intervention.
Sterling then surged on Thursday following reports that UK Prime Minister Liz Truss was planning to scrap more tax-cutting elements of the mini-budget, which had wreaked havoc in UK markets.
GBP/NZD hit an eight-month high but trimmed its gains overnight as the ensuing risk-on mood boosted the New Zealand Dollar.
Liz Truss did indeed announce another U-turn, but she also fired Kwarteng. Worries about UK political uncertainty capped the Pound’s gains.
Three Things to Watch Out for This Week
- UK Politics
Calm seems to have temporarily returned after a chaotic week in UK politics. However, with Truss’s premiership still precarious and the government embarking on a new economic plan, more turbulence may lie ahead.
- UK Inflation
Inflation in the UK is set to remain elevated, edging up from 9.9% to 10%. This could boost Sterling as traders price in more interest rate rises from the Bank of England (BoE).
- Risk Appetite
With global economic pressures and geopolitical tensions rising, risk appetite remains wobbly. Any shifts in market mood could impact the risk-sensitive New Zealand Dollar.
GBP/NZD Forecast
The rest of this week’s trade could bring more big swings in the Pound ‘Kiwi’ pair. UK political developments may continue driving volatility, although the situation seems to have stabilised. In addition to inflation, British retail sales are out on Friday. An expected contraction could see Sterling end the week on the defensive.