The Pound New Zealand Dollar (GBP/NZD) exchange rate struck a fresh three-year high last week following strong UK jobs data, before plunging to a one-week low as risk appetite recovered.
So far this week, the GBP/NZD exchange rate has roared higher. The pairing seems to have benefitted from the expected policy divergence between the Bank of England (BoE) and the Reserve Bank of New Zealand (RBNZ).
What’s Been Happening: GBP/NZD Spikes on Record UK Wage Growth
After a muted start to the week, GBP/NZD then surged. Concerns about deflation in China rattled global investors, which weighed on the risk-sensitive New Zealand Dollar (NZD).
Meanwhile, record-high wage growth boosted the Pound (GBP), as markets priced in another 50bps rate hike from the Bank of England. GBP/NZD hit a fresh three-year high.
The RBNZ’s latest interest rate decision failed to prompt much movement. The RBNZ left rates unchanged, as expected, but said it expects to keep policy restrictive for quite some time.
Midweek, a rapid turnaround in market mood saw NZD soar higher. Cooler US inflation led markets to scale back bets on further Federal Reserve rate hikes, with the Pound ‘Kiwi’ pair plunging to a one-week low.
Better-than-expected UK GDP data stemmed Sterling’s losses on Thursday. The British economy shrank by 0.1% in May, rather than the 0.3% contraction forecast.
Amid a lack of data and a stabilisation in the market mood, GBP/NZD then wavered through the latter part of the week.
Three Things to Watch Out for This Week
- UK Inflation
The latest UK consumer price index is expected to show that inflation remains stubbornly high. BoE rate hike bets could boost the Pound, although recession fears may cap gains.
- NZ Inflation
New Zealand’s inflation data is also due out. Continued cooling could weigh on the prospect of further RBNZ hikes, thereby denting NZD.
- UK Retail Sales
On Friday, UK retail sales growth is forecast to slow but remain in positive territory at 0.2% Will this be enough to provide the Pound with an end-of-week boost?
GBP/NZD Forecast
This week we could see the Pound New Zealand Dollar exchange rate once again hit a three-year high, if UK inflation prints as expected. However, with a British recession looming and risk appetite driving volatility, GBP/NZD could endure notable turbulence.