The Pound New Zealand Dollar (GBP/NZD) exchange rate traded erratically last week before sliding on mounting UK economic woes.
What’s Been Happening: GBP/NZD Exchange Rate Struggles on Gloomy UK Economic Outlook
Sterling soon found some modest support on the growing policy divergence between the Bank of England (BoE) and other major central banks. GBP was buoyed by the prospect of further tightening.
However, the latest consumer credit data from the BoE continued the narrative of increased borrowing amid the cost-of-living crisis. Despite a fall in spending, the figures still remain historically high as consumers struggle with inflationary pressures.
A speech from BoE Chief Economist Huw Pill failed to lift investor morale despite reaffirming the central bank’s mission to bring inflation down. Fears of keeping monetary policy restrictive for longer stoked recession concerns.
Meanwhile, the New Zealand Dollar (NZD) started the week subdued but soon strengthened as risk appetite improved.
Better-than-expected Chinese manufacturing PMIs boosted the ‘Kiwi’ as factory activity expanded for the first time since February.
In the second half of the week, the market mood turned volatile, and the risk-sensitive New Zealand Dollar wavered. At week’s end, risk appetite returned and NZD rallied against the flagging Pound.
Three Things to Watch Out for This Week
- UK Domestic Concerns
Mounting recession fears could keep a firm lid on the Pound as investors remain concerned about the UK’s economic health.
- BoE Interest Rate Expectations
Conversely, expectations of further tightening from the BoE could provide support to Sterling as the bank continues its inflation battle.
- Risk Appetite
Developments in China could influence market sentiment. Further stimulus could cheer the market as the country hopes to kickstart its economic recovery.
Pound New Zealand Dollar Forecast
With a thin trading calendar this week, the biggest driver in movement could be risk sentiment. With global growth concerns lingering, as well as the UK’s own recession fears, we may see volatility.