The Pound New Zealand Dollar (GBP/NZD) exchange rate plummeted to its lowest level in three months last week amid speculation that the Bank of England (BoE) was finished raising interest rates.
What’s Been Happening: GBP/NZD Plunges as BoE Pauses Hiking Cycle
The Pound (GBP) softened against the New Zealand Dollar (NZD) early last week as an improving market mood supported the risk-sensitive ‘Kiwi’.
Sterling extended its losses midweek following the UK’s latest consumer price index. Both headline and core inflation came in below forecasts, which led investors to slash their bets on further BoE rate hikes.
GBP/NZD was temporarily able to recoup some of these losses following the Federal Reserve’s rate decision. A hawkish tone from the US central bank soured the market mood.
However, notably strong New Zealand GDP data then boosted the ‘Kiwi’. Second quarter growth recovered to 0.9% from an upwardly revised 0%, beating forecasts of 0.5%.
The Pound then collapsed through the rest of the week. On Thursday, the BoE voted to leave rates unchanged for the first time in two years, although the possibility of another hike in the future helped cushion the downside.
A shockingly weak UK services PMI followed on Friday, stoking both recession fears and speculation that the BoE was done raising rates. GBP/NZD plunged to a three-month low.
Three Things to Watch Out for This Week
- New Zealand Business Confidence
Economists expect to see a recovery in New Zealand business confidence in September. If so, NZD could strengthen.
- UK GDP
The only UK data this week is the finalised GDP figures for the second quarter. Any deviation from previous estimates could impact the Pound.
- Risk Appetite
Market sentiment is also likely to drive movement in the Pound NZ Dollar pair this week. Expect NZD to soften if recent risk aversion persists, with the threat of a US government shutdown and concerns about China’s ailing property market potentially souring sentiment.
GBP/NZD Forecast
In addition, New Zealand’s latest consumer confidence score could affect the ‘Kiwi’. Will an expected decline in morale dent NZD?