The Pound New Zealand Dollar (GBP/NZD) exchange rate fell to its lowest levels since early August last week, as gloomy UK economic data weighed heavily on Sterling.
So far this week, the Pound (GBP) has extended its losses, dropping to a seven-week low against the New Zealand Dollar (NZD). Could stubborn inflation and a hawkish Bank of England (BoE) decision help GBP/NZD recover?
What’s Been Happening: GBP/NZD Drops following Downbeat GDP
The Pound initially fluctuated against the New Zealand Dollar last week as a shifting market mood saw the risk-sensitive ‘Kiwi’ rise and then retrace its gains.
Meanwhile, mixed jobs data limited the Pound’s upside potential. Although wage growth held at a record high, signs of a slowdown in the British labour market kept a firm lid on GBP.
Midweek, Sterling began its descent. The UK’s latest GDP report showed a worrying 0.5% contraction in growth in July, raising recession fears and denting Bank of England interest rate hike bets.
This pressured the Pound through to the end of the week, with a large rise in the number of UK companies going bust in August adding to economic woes.
At the same time, a growing appetite for risk saw investors flock to the New Zealand Dollar. GBP/NZD hit a five-week low on Friday, before dip-buying helped the Pound claw back some losses.
Three Things to Watch Out for This Week
- BoE Interest Rate Decision
This week, the spotlight for GBP investors will be on the BoE policy meeting. With a 25bps hike almost fully priced in, the focus is on the bank’s forward guidance. A dovish outlook could dent GBP, while hints of further rate hikes could see Sterling rally.
- UK Inflation
The UK’s consumer price index on Wednesday could be pivotal to the BoE’s decision. Could sticky inflation fuel rate hike bets and boost the Pound?
- New Zealand GDP
NZD investors will be eagerly awaiting New Zealand’s second-quarter GDP figures. The ‘Kiwi’ could climb if the expected return to growth materialises.
We could see some big swings in the GBP/NZD exchange rate this week as investors respond to the UK CPI, New Zealand GDP, and BoE rate decision. More volatility could follow through the remainder of the session, with the UK’s retail sales and PMI surveys out on Friday.