The Pound New Zealand Dollar (GBP/NZD) exchange rate recovered from a two-week low last week amid a risk-off market mood, although its ascent was rather bumpy.
What’s Been Happening: GBP/NZD Fluctuates Higher amid Waning Risk Appetite
The Pound (GBP) started last week’s session strongly, as the hawkish tilt to the Bank of England’s (BoE) interest rate decision the previous week lent Sterling support.
However, dovish comments from BoE Chief Economist Huw Pill subsequently undermined the Pound. Pill said that rate cuts were possible as early as next summer, and he pushed back on expectations of another rate hike this year.
Meanwhile, weak Chinese trade data weighed on the New Zealand Dollar (NZD), as New Zealand and China have a close trading relationship.
Higher-than-forecast New Zealand inflation expectations then lent the ‘Kiwi’ some support, as the data was seen as increasing the possibility of another Reserve Bank of New Zealand (RBNZ) rate hike.
Towards the end of the week, however, the market mood deteriorated sharply following hawkish comments from Federal Reserve Chair Jerome Powell.
This saw GBP/NZD end the week higher, despite the UK’s latest GDP reading showing that the British economy stalled in the third quarter.
So far this week, Sterling has surged as stronger-than-forecast UK employment data underpins the currency.
Three Things to Watch Out for This Week
- UK CPI
The UK’s consumer price index is expected to show a sharp cooldown in inflation last month. This could reinforce expectations that the BoE is done tightening, which in turn could see Sterling slump.
- UK Retail Sales
On Friday we may see GBP/NZD catch some bids as UK retail sales are forecast to show a 0.3% recovery in October.
- Risk Appetite
Meanwhile, market risk appetite could drive most movement in the ‘Kiwi’ amid a lack of New Zealand economic data.
GBP/NZD Forecast
The GBP/NZD exchange rate could face further volatility this week amid the high-impact UK economic data. If the CPI and sales figures print as expected, we could see Sterling slump midweek before regaining ground on Friday. Investors are likely bracing for another week of turbulent trade.