Pound New Zealand Dollar (GBP/NZD) Exchange Rate Strengthens amid Souring Market Mood
The Pound New Zealand Dollar (GBP/NZD) exchange rate briefly hit a fresh three-year high today as a decisively downbeat market mood and rising New Zealand unemployment both hammered the ‘Kiwi’. However, Sterling then succumbed to some profit-taking.
At the time of writing, GBP/NZD is trading at NZ$2.0916, having retreated from an earlier three-year high of NZ$2.0958. The pairing remains up 0.7% on the day.
New Zealand Dollar (NZD) Slides amid Risk Aversion and Poor Data
The New Zealand Dollar (NZD) slumped overnight as disappointing economic data and an anxious market mood weighed heavily on the risk-sensitive currency.
New Zealand’s latest unemployment rate ticked higher than expected, rising from 3.4% to 3.6%, versus the forecast 3.5%. Signs of ongoing cooling in the country’s labour market suggest that the economy continues to slow as interest rate hikes begin to apply the brakes to growth.
Furthermore, traders are shunning the riskier ‘Kiwi’ amid a bearish mood, as uneasy investors instead flock to safer assets.
Last night, the rating agency Fitch downgraded the US credit rating from AAA to AA+ in a move that caught onlookers off guard.
In a statement, the agency said:
‘In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025…
‘The repeated debt limit political standoffs and last-minute resolutions have eroded confidence in fiscal management’.
The unexpected announcement shook markets, sparking widespread risk aversion. However, some analysts believe that – with growth prospects improving and central banks seemingly at the end of their hiking cycles – the market mood could soon recover.
Pound (GBP) Suffers Profit-Taking
Turning to the Pound (GBP), the UK currency ran afoul of some profit-taking after hitting a three-year high against the New Zealand Dollar this morning.
That said, GBP/NZD remains firmly up on the day. Markets are anticipating a 25bps interest rate hike from the Bank of England (BoE) at its interest rate decision tomorrow, which may be underpinning the Pound despite today’s lack of data.
There is also the possibility that the BoE will signal the need for further tightening, so Sterling remains modestly supported.
GBP/NZD Exchange Rate Forecast: BoE Decision to Boost the Pound?
Through the remainder of today’s session, a lack of data on both sides could see the Pound New Zealand Dollar pair continue to trade on risk appetite.
If the market selloff gathers pace, the riskier ‘Kiwi’ could once again turn south against Sterling. However, if there is any improvement in the mood then NZD could potentially claw back more losses.
Attention then turns to the BoE decision tomorrow at noon. With a 25bps hike priced in, investors will be focusing on the bank’s forward guidance. Could hints at more hikes see Sterling soar?