The Pound New Zealand Dollar (GBP/NZD) exchange rate initially stumbled last week but managed to recoup its losses as markets bet on the Bank of England (BoE) raising interest rates.
What’s Been Happening: GBP/NZD Wavers as Markets Brace for BoE Decision
The Pound (GBP) fell against the New Zealand Dollar (NZD) at the start of last week’s session. Sterling suffered some profit-taking while the risk-sensitive ‘Kiwi’ enjoyed a bullish market mood.
GBP then gained ground after UK jobs data beat forecasts. The British unemployment rate unexpectedly fell while wage growth exceeded predictions, which in turn sparked BoE speculation.
Although a 0.2% expansion in UK GDP failed to prevent a fall in the Pound on Wednesday, it may have helped provide the UK currency with support through the latter part of the week. With markets pricing in the possibility of a 50bps hike from the BoE this week, GBP firmed.
Meanwhile, NZD failed to sustain its risk-on gains due to some worrying economic data.
New Zealand GDP on Wednesday night confirmed that the country had entered a recession, while the latest manufacturing PMI revealed a deepening contraction in activity.
Three Things to Watch Out for This Week
- BoE Rate Decision
The British central bank meets on Thursday to set rates, with a high likelihood of a 25bps hike. If the BoE signals further rises to come then Sterling could climb.
- UK Sales and PMI Data
Friday brings the latest UK retail sales as well as June’s flash PMIs. Economists expect the retail, services and manufacturing sectors to all show weaker activity, which would likely weigh on GBP exchange rates.
- NZ Balance of Trade
New Zealand’s trade balance is due Wednesday night. The ‘Kiwi’ could stumble if the country reported a trade deficit in May.
GBP/NZD Forecast
Ahead of the BoE decision we also have the UK’s consumer price index, which could boost the Pound if it shows that inflation remains stubbornly high. Overall, if this week’s data prints as expected then GBP/NZD could hit new multi-year highs before trimming its gains on Friday.