Pound New Zealand Dollar (GBP/NZD) exchange rate drops as UK GDP misses forecasts

Pound New Zealand Dollar (GBP/NZD) exchange rate stumbles on UK data

The Pound New Zealand Dollar (GBP/NZD) exchange rate has plummeted so far today following the release of the UK’s latest economic data. December’s GDP reading shows that the British economy contracted by more than expected in the final quarter of 2023.

At the time of writing, GBP/NZD is trading at NZ$2.0558, having fallen by more than 0.3% in the past 24 hours.

Pound (GBP) downbeat amid recession woes

The Pound (GBP) is retreating against the majority of its peers as today’s GDP data revealed a greater-than-expected shrinking of the UK’s economy. Released as the European session opened, the preliminary reading printed at –0.3% on a quarterly basis and –0.2% on the year; against forecasts of annual growth.

As the second consecutive contraction for the UK economy, the news confirms that the UK fell into a technical recession at the end of 2023. Thus, fears of further economic headwinds have intensified: markets now worry that the Bank of England (BoE) may be forced to backpedal on its recent hawkish outlook.

Despite its bold rhetoric, dovish concerns have circulated amongst the BoE’s Monetary Policy Committee (MPC) in recent weeks, with policymaker Swati Dhingra insisting that a pivot towards monetary policy loosening would be acceptable to markets and the public.

Given yesterday’s softer-than-forecast inflation reading, Dhingra’s assessment may be taken up by others. Nevertheless, there are those on the Bank of England’s interest rate decision-making panel who maintain that it is too soon to alter the central bank’s policy trajectory.

Policymaker Megan Greene says she wants to see further evidence of fading inflation before considering rate cuts: ‘It’s clear that monetary policy is restrictive in the UK. But in light of the persistence of UK wage and services price pressures, I think policy will need to remain restrictive for some time.’

New Zealand Dollar (NZD) climbs on risk-on mood

The New Zealand Dollar (NZD) is firming through today’s European session, boosted by bullish momentum as Wall Street’s main indexes register gains.

Worse-than-expected Australian data appears to have had little effect upon the ‘Kiwi’: unemployment increased by 0.2% in January and the economy added fewer jobs than predicted. Moreover, ongoing troubles in China’s real estate sector fail to support the Antipodean currencies.

Nevertheless, NZD trade remains upbeat. Potentially buoying the currency may be expectations of easing inflation in New Zealand; earlier in the week, business inflation expectations printed below forecasts as did food inflation data.

Unlike the Reserve Bank of Australia (RBA), markets suspect the Reserve Bank of New Zealand (RBNZ) is ready to adopt a dovish position, ceasing to raise interest rates any further. Commerzbank analysts remarked on Tuesday:

‘If the RBNZ does raise rates again, it would be an extremely hawkish signal and would justify much higher levels. But given the trend in inflation and economic growth, I just don’t think it’s very likely.’

While RBA/RBNZ monetary policy divergence may not boost the ‘Kiwi’, the prospect of lower living costs and recovering economic conditions in New Zealand could be contributing toward the New Zealand Dollar’s uptrend.

GBP/NZD forecast: exchange rate to trade on NZ data?

The Pound New Zealand Dollar exchange rate could trade according to a speech this evening from the RBNZ’s Governor Adrian Orr. If Orr maintains a moderately dovish tone, the ‘Kiwi’ could sink; although the bank’s unaggressive tone has not yet had a detrimental effect upon the currency.

Further into the Asian session, New Zealand’s latest business PMI could propel NZD/GBP higher if the reading prints as expected – the performance of manufacturing index is expected to show increased activity in January.

Meanwhile, hopes for increased retail sales in the UK may help the Pound to recover some of today’s losses. As markets consider the likelihood of a changing approach from the Bank of England, any positive news from the UK could lend Sterling a boost.

Olivia Evershed

Contact Olivia Evershed


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