The Pound New Zealand Dollar (GBP/NZD) exchange rate fluctuated over the past week, but ended stronger amid persistent bearish trade.
What’s Been Happening: GBP Dented by Cooling Inflation
At the start of the week, the Pound (GBP) enjoyed some support as employment data pointed to a tight labour market. The unemployment rate held near historic lows, unmoved from 3.7%, while wage growth surprised to the upside.
However, cooler-than-forecast inflation sent Sterling downward against most major peers. Both headline and core inflation fell far below forecasts, leading GBP investors to pare Bank of England (BoE) rate hike bets.
Sterling then managed to close the week with a rebound, following expectation-beating retail sales in January. Last Friday’s release showed that sales had recovered by 0.5%, as opposed to forecasts of a 0.3% decline.
Meanwhile, the New Zealand Dollar (NZD) enjoyed some strength at the beginning of the week. New Zealand’s service sector recovered beyond expectations. However, the risk-sensitive ‘Kiwi’ was unable to consolidate these gains over the week.
Furthermore, dovish comments from New Zealand’s Financial Minister Grant Robertson kept NZD downbeat. As he implied inflation had peaked, rate hike bets ahead of this week’s Reserve Bank of New Zealand (RBNZ) interest rate decision weakened.
Three Things to Watch Out for This Week
- UK Private Sector PMIs
The UK’s services index saw a surprise return to growth in February, while the manufacturing sector shrank less than expected. Could this help to underpin GBP this week?
- RBNZ Interest Rate Decision
Overnight on Tuesday, the RBNZ will deliver its latest interest rate decision. While a 50bps hike is priced in, could dovish forward guidance weigh on the ‘Kiwi’?
- NZ Balance of Trade
January’s balance of trade data is forecast to show an increase in the country’s trade deficit. Should the deficit widen, NZD may weaken.
Looking ahead, speeches from Bank of England (BoE) policymakers are scheduled throughout the week. GBP could rally if a hawkish consensus is seen. For the ‘Kiwi’, risk appetite may play a role in shaping the currency. A shift towards upbeat trade could lift NZD.