The Pound New Zealand Dollar (GBP/NZD) exchange rate exchange rate weakened last week, as dovish forward guidance from the Bank of England erased GBP’s gains.
What’s Been Happening: GBP Sinks on Dovish BoE Forward Guidance
The Pound began last week strongly, underpinned by optimism over a deal to revise the Northern Ireland protocol brought tailwinds.
However, these hopes for amicable trade between the UK and EU were countered by dovish comments from Bank of England (BoE) Governor Andrew Bailey hinted interest rates may have peaked, which prompted a Sterling sell-off.
GBP was able to end the week on a positive note, however. On Friday, the UK’s services PMI showed that the key sector had expanded more than forecast in February.
Meanwhile, the New Zealand Dollar traded on risk appetite over the last week. An initial rally was linked to jubilant Chinese private sector indexes, due to New Zealand’s close trading relationship with the superpower.
However, the risk-sensitive side of the ‘Kiwi’ prevented the currency from consolidating these gains over the week. As the market mood soured, NZD weakened.
Three Things to Watch Out for This Week
- UK GDP
On Friday, the UK’s January GDP data is due to print. A growth rate of 0.1% is forecast, which could lift the Pound.
- Chinese Inflation Data
Thursday sees the release of China’s latest inflation data. Forecasts anticipate inflation will slow, which could weigh on NZD.
- BusinessNZ PMI
The BusinessNZ PMI for February is due to print on Thursday. Economists forecast a return to growth for New Zealand’s manufacturing sector, which could boost the ‘Kiwi’.
GBP/NZD Outlook
With data relatively thin this week, GBP investors may shift focus to domestic headlines. Ahead of next week’s budget, the cost-of-living crisis may be in focus. Any news outlining its impact on UK households could weigh on Sterling.
For NZD, risk appetite is likely to be a significant catalyst of movement. A souring market mood could dampen the ‘Kiwi’. However, if China’s data surprises, a risk-on rally could occur.