The Pound New Zealand Dollar (GBP/NZD) exchange rate fell last week as a sharp improvement in market sentiment saw the risk-sensitive ‘Kiwi’ surge higher.
What’s Been Happening: GBP/NZD Slumps as Market Mood Improves
The New Zealand Dollar (NZD) found success early last week thanks to its positive correlation with a rising Australian Dollar (AUD).
However, the ‘Kiwi’ then slipped to a one-week low against the Pound (GBP) after weaker New Zealand employment data. The country’s jobless rate leapt from 3.6% in the second quarter to 3.9% in Q3 – its highest level in over two years.
NZD was then able to rally through the latter part of the week, courtesy of a risk-on market mood as investors became increasingly convinced that the Federal Reserve was done raising interest rates.
Meanwhile, Sterling was left rudderless through the first part of the session amid a lack of UK economic data.
The Bank of England (BoE) interest rate decision on Thursday then caused mixed movement. While the BoE left policy untouched, as expected, there was a surprisingly hawkish split among policymakers. However, the BoE also highlighted recession risks facing the UK.
GBP/NZD briefly brushed a near three-week low on Friday amid the risk-on mood in markets, although it quickly rebounded. The hawkish tilt to the BoE meeting seemed to spare Sterling further losses.
Three Things to Watch Out for This Week
- UK GDP
The UK’s third-quarter GDP growth rate is out on Friday. Forecasters are predicting a 0.1% contraction in growth, which could weigh on GBP.
- New Zealand Manufacturing PMI
October’s PMI may put pressure on the ‘Kiwi’, as it’s expected to show an ongoing contraction in New Zealand factory activity.
- Risk Appetite
Market sentiment could also continue to be a driving factor behind the GBP/NZD exchange range. A shifting mood could drive volatility.
GBP/NZD Forecast
So far this week, GBP/NZD has regained ground as the risk-on rally fades. The rest of the week could bring volatility, with China’s latest inflation figures potentially causing turbulence. Sterling could ultimately end the week on a sour note due to the GDP data.