GBP NZD Exchange Rate Slips as UK Real Incomes Shrink

June 14, 2017 - Written by Toni Johnson

STORY LINK GBP NZD Exchange Rate Slips as UK Real Incomes Shrink

The latest UK news has concerned traders, leading to a drop to 1.7562 in the GBP NZD exchange rate.

The UK data, covering average earnings in April, has combined negatively with Tuesday’s UK inflation rate figures. Annual inflation rose to 2.9% in May, while recent wage growth figures have remained far beneath this level.

With bonuses, wage growth in April has slowed to 2.1%, while without a lower 1.7% has been recorded.

Both of these figures show that the UK is in the grips of a wage squeeze situation, which bodes poorly for the UK economy in the future.

Other UK jobs data showed a historically high level of employment, at 74.8% of the population. There was little positive impact from this news, however, due to rising employment coming along with the growth of the unstable ‘gig economy’.

Helen Barnard of the Joseph Rowntree Foundation has focused on the issues raised by the statistics;

‘It’s encouraging to see employment levels continue to rise and unemployment…fall. But the troubling news for the government is the continued squeeze on wages for those are in work. This is the first time that there has been a year-on-year decrease in real total pay since 2014.

We have reached a tipping point where rising costs are outstripping earnings, leaving millions of families in a precarious position. It means the new government must act to ease the strain by lifting the damaging freeze on tax credits, and prioritising plans to drive up pay and productivity across the country’.

The Pound’s bad week may get worse on Thursday, which will bring early retail sales figures for May. The results could dramatically highlight the damage caused by the current wage squeeze, as forecasts are for falling or slowing sales across the board.

Such results may trigger Pound to New Zealand Dollar losses, ahead of the later Bank of England (BoE) policy meeting.

The BoE is not expected to raise interest rates this time, but could propose a shift in policy to combat the current pressure on UK wages.

The New Zealand Dollar’s latest gains come from US Dollar weakness, which has been triggered ahead of a possible US interest rate hike.

Additionally, the Q1 NZ current account has risen from a deficit to a surplus, but not by as much as expected.

Upcoming NZ data will be high-impact, covering the GDP growth rate for the first quarter. This is predicted to show a quarterly rise, which may trigger a New Zealand Dollar rise.

Any NZD gains may be short-lived, however, if the US Federal Reserve raises the US interest rate. This is a widely expected outcome, which could temporarily push the US Dollar up and the New Zealand Dollar down.

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TAGS: Pound New Zealand Dollar Forecasts