GBP to NZD Exchange Rate Strikes New 2-Year-Best as Risk-Sentiment Dips

February 17, 2021 - Written by John Cameron

STORY LINK GBP to NZD Exchange Rate Strikes New 2-Year-Best as Risk-Sentiment Dips

The Pound continues to benefit from global market sentiment and the British Pound to New Zealand Dollar (GBP/NZD) exchange rate is touching new highs this week as a result. A brief slip in global market sentiment due to some surprising shifts in US data and Treasury yields are not hurting the Pound as much as typical risk and trade-correlated currencies like the New Zealand Dollar. Still, New Zealand’s outlook remains fairly optimistic overall.

Sterling continues to capitalise on the global coronavirus outlook even despite strength in rivals. GBP/NZD climbed from 1.9078 to 1.9163 last week, a gain of almost a cent, despite the New Zealand Dollar’s own strong outlook.

This week’s movement has been similar so far, with NZD attempting to hold its ground but market sentiment pushing GBP higher and higher. This morning, GBP/NZD touched on a high of 1.9330 - the best level for the pair since November.

At the time of writing, GBP/NZD is trending a little lower in the region of 1.9284. This is still over a cent above the week’s opening levels however.

GBP Exchange Rates Remain Appealing as UK Inflation More Resilient than Expected

The Pound has been one of the most appealing major currencies in recent weeks, and this trend seems set to continue for now.

While some analysts speculate that the Pound’s bullishness could be running out of steam, hopes for vaccine rollout and recovery from the coronavirus pandemic are keeping markets optimistic about the Pound.

Over 23% of Britain’s population has received at least one dose of the coronavirus vaccine, keeping the vaccine rollout ahead of those in other major economies. The infection rate continues to fall amid the third national lockdown as well.

The primary cause of the Pound’s continued strength is coronavirus recovery hopes, but the British currency has been benefitting from recent UK data showing resilience in Britain’s economy as well.

Today saw the publication of Britain’s latest inflation rate results, which showed that price pressures in the UK were weathering the pandemic better than expected. Inflation rose to 0.7% year-on-year in January despite being expected to remain at 0.6%.

According to Jai Malhi, Global Market Strategist at JPMorgan, UK inflation is on track to keep strengthening this year:

‘A mix of supply distortions from Brexit and Covid-19, alongside a strong demand recovery, could create a recipe for higher prices across both the goods and services sectors. Inflation is likely to start testing the Bank of England’s 2% target later in the year when the UK consumer is able to unleash some of the £125bn of additional savings they’ve accumulated during lockdowns, particularly if they run into supply bottlenecks.’

Strong inflation is more likely to keep the Bank of England (BoE) from further monetary policy easing as well.

NZD Exchange Rates Dip on Market Sentiment but Outlook Remains Fairly Strong

The New Zealand Dollar is a currency often correlated to risk and trade sentiment. As a result, it has been benefitting from coronavirus pandemic recovery hopes lately.

However, today is seeing something of a brief risk-off movement. This is causing the New Zealand Dollar to tumble and making it easier for GBP/NZD to touch its best levels in months.

Today’s risk-off movement comes largely due to a shift in demand for the safe haven US Dollar (USD). Yesterday’s stronger than expected US manufacturing data made markets more optimistic about the US economy.

The data also led to a jump in US Treasury yields, which further boosted US Dollar demand and weighed on the risk-correlated New Zealand Dollar.

However, the New Zealand Dollar outlook remains overall optimistic due to New Zealand’s strong data and handling of the coronavirus pandemic. This means the current NZD weakness may not last.

GBP/NZD Exchange Rate Forecast: Current Rally May Not Last

The Pound is likely to remain appealing, but the New Zealand Dollar is appealing too. This could mean that GBP/NZD loses its current strength and slips back in the coming week or so.

The current risk-off movement caused by US Dollar strength may be temporary. Overall, optimism in coronavirus vaccines and recovery continues to rise, which will only keep the New Zealand Dollar appealing going forward.

What’s more, analysts believe the Reserve Bank of New Zealand (RBNZ) might be a little more optimistic than last year during next week’s upcoming policy decision. According to Dominick Stephens, Chief NZ Economist at Westpac:

‘The RBNZ might talk less about looming downside risks, and will probably not actively promote the possibility of further rate cuts, as it did over most of last year,’

The Pound could also weaken in the coming days if upcoming key UK data disappoints investors.

Friday’s slew of key UK data, including retail sales and PMI projections, will be closely watched by Pound to New Zealand Dollar exchange rate investors.

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TAGS: Pound New Zealand Dollar Forecasts