The Pound New Zealand Dollar (GBP/NZD) exchange rate strengthened last week, briefly hitting a fresh three-year high, although concerns about the UK’s economic outlook caused some volatility.
What’s Been Happening: GBP/NZD Zigzags Higher as BoE Delivers Half-Point Hike
The Pound (GBP) climbed against the New Zealand Dollar (NZD) early last week as Sterling continued to gather strength ahead of the Bank of England (BoE) interest rate decision and a gloomy market mood weighed on the risk-sensitive ‘Kiwi’.
However, Sterling then slumped after a hotter-than-expected consumer price index. UK headline inflation unexpectedly held at 8.7% while core inflation spiked again to hit a fresh 31-year high.
This rattled GBP investors, stoking fears that persistently high inflation and more aggressive interest rate rises would spell trouble for the UK economy in the long term.
After the BoE opted for a larger-than-expected rate rise of 50bps, GBP/NZD was able to regain ground.
Sterling’s progress against the ‘Kiwi’ was further supported by a souring market mood, which weighed heavily on the risky New Zealand Dollar. Investors grew increasingly concerned about slowing global growth and rising interest rates.
Three Things to Watch Out for This Week
- BoE Speeches
BoE Governor Andrew Bailey and Chief Economist Huw Pill are due to speak this week at the European Central Bank’s (ECB) Sintra Forum. Signals of further tightening could support GBP while recession worries could cap gains.
- UK GDP
The final results for UK GDP growth in the first quarter is due out, with previous estimates showing a modest 0.1% expansion. A revised reading could inject volatility in GBP exchange rates.
- NZ Business and Consumer Confidence
With the New Zealand economy in recession, falling business and consumer morale could hurt the ‘Kiwi’.
GBP/NZD Forecast
In addition to the above, risk appetite could drive significant movement in the Pound New Zealand Dollar Exchange rate. The market mood is improving after the Wagner group called off its coup in Russia. It the bullish mood prevails, it could help the ‘Kiwi’ regain ground.