The Pound New Zealand Dollar (GBP/NZD) exchange rate slumped from a seven-year high to a one-week low last week after worrying UK economic data sparked fears of a coming recession.
What’s Been Happening: GBP/NZD Slides after UK Business Activity Contracts
The GBP/NZD exchange rate initially hit a fresh a seven-year high last week after a larger-than-forecast widening of New Zealand’s trade deficit in July weighed heavily on the ‘Kiwi’.
However, the Pound (GBP) soon turned south. New data from the Confederation of British Industry (CBI) on Tuesday showed a larger-than-forecast decline in industrial orders.
This was compounded midweek as the UK’s PMIs printed far worse than expected, showing a shock contraction in overall business activity. Sterling slumped as the data stoked recession fears.
More weak CBI data followed, with retail trade tumbling to its lowest level in over two years in August. GBP/NZD hit a one-week low.
Meanwhile, the risk-sensitive New Zealand Dollar (NZD) was able to recover from its initial downside thanks to an improving market mood.
A contraction in second-quarter retail sales limited NZD’s initial recovery, although the 1% decline was not as bad as the expected 2.6% slump.
Nevertheless, the ‘Kiwi’ rallied against the Pound and held strong at the end of the week.
Three Things to Watch Out for This Week
- BoE Pill Speech
Bank of England (BoE) Chief Economist Huw Pill is due to speak on Thursday. If he sounds concerned about the UK’s recent worrying data, GBP could fall.
- New Zealand Business Confidence
Economists expect a sharp improvement in New Zealand business confidence in August. The ‘Kiwi’ could rise if the data prints as expected.
- Risk Appetite
The market mood will likely remain a defining factor for the GBP/NZD exchange rate this week. Will an ongoing appetite for risk see the New Zealand Dollar gain further ground?
This week we also have the latest New Zealand consumer confidence report, with an expected deterioration potentially denting NZD. Meanwhile, thin trading conditions for the Pound could see the currency pair waver.