After falling last week, the Pound New Zealand Dollar (GBP/NZD) exchange rate managed to reclaim some losses as the new week began. Investors cheered Rishi Sunak’s appointment as UK Prime Minister, although poor UK PMI data trimmed the Pound’s (GBP) gains.
What’s Been Happening: GBP/NZD Falls from Eight-Month High amid UK Political Chaos
Sterling looked strong at the start of last week, surging to an eight-month high against the New Zealand Dollar (NZD) as Jeremy Hunt, the new Chancellor, scrapped the unfunded tax cuts from the mini-budget.
However, GBP/NZD quickly turned south. New Zealand’s latest inflation reading exceeded forecasts, prompting bets for more interest rate increases from the Reserve Bank of New Zealand (RBNZ).
Meanwhile, uncertainty in UK politics and government gilt markets troubled GBP investors, while higher-than-forecast inflation stoked cost-of-living concerns.
At the end of the week, Liz Truss resigned as Prime Minister of the UK and the Conservative Party prepared for its second leadership contest this year. In addition, UK retail sales contracted more then forecast, pushing the Pound lower.
At the same time, a shifting market mood caused mixed movement in the risk-sensitive ‘Kiwi’. However, with risk sentiment improving overall, NZD gained ground.
Three Things to Watch Out for This Week
- Risk Appetite
The ‘Kiwi’ is highly sensitive to market sentiment. As a result, global geopolitical and economic fears could pressure NZD, and a shifting mood could drive volatility.
- UK Politics
The next few days look set to be far less dramatic than last week. Even so, UK markets are febrile and investors are waiting to see how Rishi Sunak grips the challenges facing the country. Any policy hints could prompt movement.
- BoE Speakers
Ahead of the Bank of England (BoE) decision next week, comments from BoE policymakers could impact Sterling. Will the government’s abandonment of the mini-budget prompt a more dovish tone?
GBP/NZD Forecast
The Pound ‘Kiwi’ pair could continue to see turbulence over the remainder of the week. If GBP investors are more worried about the UK economy than they are hopeful for Sunak’s premiership, then Sterling could slip lower.