The Pound New Zealand Dollar (GBP/NZD) exchange rate rose to a three-week high last week as a souring market mood weighed on the risk-sensitive ‘Kiwi’.
So far this week, GBP/NZD has already witnessed volatility. The pairing weakened at the start of the session, only to rebound to new highs after New Zealand inflation missed forecasts, thereby denting Reserve Bank of New Zealand (RBNZ) interest rate expectations. However, signs of slowing UK wage growth have undermined the Pound (GBP).
What’s Been Happening: GBP/NZD Recovers amid Waning Risk Appetite
The GBP/NZD exchange rate initially slipped last week, with the resource-linked New Zealand Dollar (NZD) being boosted by rising commodities prices.
However, prices eventually retreated and the market mood soured, causing the ‘Kiwi’ to relinquish its gains.
Meanwhile, the Pound found limited support following the International Monetary Fund’s (IMF) latest outlook. The IMF said UK interest rates may remain higher for longer, but warned of slow growth next year, which capped GBP’s upside.
Worries about the UK economy continued. UK GDP disappointed investors, while Chancellor Jeremy Hunt warned of ‘challenges’ ahead.
Nevertheless, Sterling was able to climb against a weaker ‘Kiwi’, with the New Zealand Dollar coming under notable pressure as sentiment soured further.
Sticky US inflation raised fears of higher global borrowing costs, while investors grew increasingly concerned about the escalating violence in Israel and Gaza.
In addition, a deepening contraction in New Zealand manufacturing activity weighed on NZD.
Three Things to Watch Out for This Week
- UK Inflation
The UK’s consumer price index is the focus for the remainder of the week. Inflation is set to cool, but only slightly. A weaker reading could see GBP slump while signs of sticky inflation could push the Pound higher.
- UK Retail Sales
Sterling could end the week on a sour note as economists expect UK retail sales to have contracted 0.2% in September.
- New Zealand Trade Data
New Zealand’s latest balance of trade on Thursday is expected to show a widening trade deficit. This could dent the ‘Kiwi’.
GBP/NZD Forecast
In addition to these high-impact data releases, risk sentiment could drive volatility in the Pound New Zealand Dollar pairing. If global geopolitical tensions continue to escalate amid the Israel-Hamas war, a deterioration in risk appetite could boost GBP/NZD.