The Pound New Zealand Dollar (GBP/NZD) exchange rate climbed last week as persistent Bank of England (BoE) interest rate bets were met with a dampening market mood.
What’s Been Happening: GBP/NZD Exchange Rate Leaps amid BoE Policy Divergence
The Pound (GBP) opened last week under pressure when underwhelming PMIs showed a stalling economy. Growth in both the manufacturing and services sectors fell short of expectations.
However, providing some much-needed support to Sterling was mounting expectations that the BoE still has a long way to go before taming inflation. With both the Federal Reserve and the European Central Bank (ECB) nearing the end of their hiking cycles, the Pound climbed amid policy divergence.
At the end of the week, Sterling faced some turbulent trading conditions after the CBI Distributive Trades survey showed UK retail sales growth in July fell to a 15-month low.
Meanwhile, the New Zealand Dollar (NZD) started on the front foot as news of further economic stimulus from China cheered markets.
But the close relationship the ‘Kiwi’ shares with the Australian Dollar (AUD) weighed on the former as inflation in Australia cooled further than expected. Pared rate hike bets from the Reserve Bank of Australia (RBA) sapped demand from the Antipodean pair.
Amid a souring market mood, the New Zealand Dollar plummeted and closed out the week under pressure.
Three Things to Watch Out for This Week
- BoE Interest Rate Decision
With a25bps rate hike priced in, all eyes will be on the BoE’s forward guidance. A hawkish tone could boost Sterling if the central bank eyes further tightening.
- New Zealand Labour Market Data
The unemployment rate is expected to climb to 3.5%, highlighting a cooling labour market. Diminishing rate hike bets could sap NZD demand.
- UK PMIs
If both final services and manufacturing PMIs confirm the UK economy is teetering on the edge of stagnation, Sterling could slide.
Pound New Zealand Dollar Forecast
Elsewhere, market sentiment could remain a strong driver of movement in GBP/ZAR. Lingering concerns of global slowdown amid soaring borrowing costs could see the risk-sensitive New Zealand Dollar slip further.