Pound Sterling New Zealand Dollar Exchange Rate Boosted by Higher NZ Unemployment Rate

February 1, 2017 - Written by David Woodsmith

STORY LINK Pound Sterling New Zealand Dollar Exchange Rate Boosted by Higher NZ Unemployment Rate

January’s UK Construction PMI proved disappointing on Thursday morning, leaving the Pound to New Zealand Dollar exchange rate trending lower around 1.7326 as signs continued to point towards rising inflationary pressure.

Even so, if the BoE Inflation Report proves to be more hawkish in tone this could see Sterling rally later in the day.

[Previously Updated: 01/02/2017]

As the parliamentary vote on the government’s Article 50 bill drew nearer the Pound Sterling to New Zealand Dollar exchange rate trended sharply higher, despite ongoing unease over Theresa May’s hard line of rhetoric on Brexit.

New Zealand Dollar Dented by Rising NZ Unemployment

The appeal of the New Zealand Dollar (NZD) deteriorated markedly in the wake of the fourth quarter labour market data, which saw the unemployment rate disappoint expectations and rise from 4.9% to 5.2%.

This was ultimately thanks to a sharp increase in the corresponding participation rate, as the increase from 70.1% to 70.5% indicated that a larger portion of the population were active within the jobs market.

With risk appetite generally weakened by the fallout of political developments in the US investors were not inclined to favour the ‘Kiwi’, which trended lower across the board.

Sentiment also weakened in response to the announcement that a national election will be held on September 23rd, creating an element of domestic political uncertainty that has weighed on the New Zealand Dollar.

Rising Inflationary Pressure Failed to Weigh on Pound Sterling

Despite UK Manufacturing PMI showing a slight dip in sector growth the Pound entered a bullish run on Wednesday, with investors still confident in the underlying resilience of the domestic economy.

The details of the report were not overly positive, with Rob Dobson, Senior Economist at HIS Markit, noting that:

‘Input cost inflation spiked to the highest seen since data were first collected in 1992. Over 55% of companies link rising costs to the exchange rate. However, we’re also seeing more companies reporting domestic supplier price hikes resulting from the rising cost of commodities such as fuel, oil, plastics and steel. With cost pressures increasingly feeding though to higher selling prices at factories, it looks inevitable that consumer price inflation will rise further in coming months.’

While rising inflation is likely to put wages under pressure, limiting consumer spending, investors were nevertheless encouraging investors to bet that the Bank of England (BoE) will opt to raise interest rates sooner rather than later.

GBP NZD Exchange Rate Forecast: Fed and BoE Meetings in Focus

Tonight’s Federal Open Market Committee (FOMC) policy meeting is likely to provoke fresh volatility for the GBP NZD exchange rate, and could prompt the ‘Kiwi’ to extend its slump further.

While there are no expectations for policymakers to make any change to monetary policy at this juncture investors will still be looking for any indication as to when the next interest rate hike might come.
If the Fed fails to take a more hawkish tone at this juncture the New Zealand Dollar could find a rallying point, although the more risk averse mood of markets is unlikely to ease for long.

Demand for the Pound could weaken, on the other hand, if BoE Governor Mark Carney reasserts the Bank’s neutral outlook on monetary policy and its intention to look through at least some degree of the post-referendum rise in inflation.

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TAGS: Currency Predictions New Zealand Dollar Forecasts Pound St Forecasts