The Pound New Zealand Dollar (GBP/NZD) exchange rate brushed a two-week high last Wednesday, only to relinquish all its gains through the second part of the session amid a pullback in Bank of England (BoE) interest rate hike bets.
What’s Been Happening: Dovish BoE Comments See Sterling Slide
The GBP/NZD exchange rate surged higher through the first part of last week’s session, with the Pound (GBP) finding renewed support amid an upward revision to the UK’s final services PMI.
At the same time, the New Zealand Dollar (NZD) was dragged lower by its strong positive correlation with the Australian Dollar (AUD). The ‘Aussie’ plunged after a dovish rate decision from the Reserve Bank of Australia (RBA).
A souring market mood put more pressure on the risk-sensitive ‘Kiwi’ in the middle of the week, allowing GBP/NZD to touch a two-week high.
However, comments from BoE Governor Andrew Bailey saw the Pound quickly reverse its direction on Wednesday afternoon.
Bailey said that he expects a ‘quite marked’ fall in inflation and that the BoE was ‘much nearer now to the top of the [rate hiking] cycle’.
The subsequent pullback in interest rate expectations saw Sterling slump to a one-month low against the ‘Kiwi’.
GBP/NZD clawed back its losses at the end of the session amid a souring mood, with the pairing ending up virtually unchanged from the week’s opening levels.
Three Things to Watch Out for This Week
- UK Jobs Data
This week, a mixed labour market report has dented GBP. Although wage growth remained at record levels, unemployment edged higher. Could BoE bets cushion the Pound’s losses?
- UK GDP
Wednesday may see Sterling face fresh headwinds. UK GDP is forecast to have contracted 0.2% in July. Signs of a weakening economy may raise recession fears.
- New Zealand PMI
New Zealand’s August business PMI is out on Thursday. With private sector activity set to slip deeper into contraction territory, NZD could stumble.
If the UK GDP data prints at or below expectations, we could see Sterling reapproach one-month lows against the ‘Kiwi’. Elsewhere, risk appetite could spark volatility in the GBP/NZD exchange rate.