The Pound New Zealand Dollar (GBP/NZD) exchange rate traded erratically last week, after some dovish forward guidance from the Bank of England (BoE).
What’s Been Happening: BoE Takes Dovish Pivot, GBP With It
The Pound (GBP) began last week on the defensive, as risk appetite across markets remained low. The International Monetary Fund (IMF) further undermined the appeal of Sterling’s as it predicted that the UK economy would be the only G7 economy to shrink in 2023.
Following this, ‘Walkout Wednesday’ kept GBP muted as 500,000+ workers staged a co-ordinated strike across the UK. However, the Federal Reserve’s dovish pivot ignited risk-on trade, bringing support to Sterling and the New Zealand Dollar (NZD).
While the Bank of England’s (BoE) 50bps rate hike was priced in, the accompanying dovish forward guidance sent the Pound downwards. As such, GBP ended the week lower against most pairs, bar the risk-sensitive ‘Kiwi’.
The volatile political situation in New Zealand weighed on NZD, followed by a downbeat set of employment data. With the unemployment rate printing at 3.4%, higher than expected, the ‘Kiwi’ was muted.
Souring risk appetite then sent the ‘Kiwi’ downward at the end of the week.
Three Things to Watch Out for This Week
- UK GDP
The UK’s fourth quarter GDP release is due to print on Friday. If the UK managed to avoid a recession at the end of 2022 the Pound is likely to strengthen.
- BusinessNZ PMI
Thursday evening brings the latest BusinessNZ PMI for January. The index is forecast to show an improvement, but remain in contractionary territory which could weigh on the ‘Kiwi’.
- BoE Policymakers
Bank of England Policymakers are due to speak throughout the week. If they strike a broadly hawkish tone, Sterling could rally.
Pound New Zealand Dollar (GBP/NZD) Outlook
GBP/NZD could strengthen over the week, should the BoE policymakers take a hawkish stance towards further rate hikes. However, if the picture is mixed GBP rates could fluctuate. If risk appetite improves, NZD may rally higher than Sterling.