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GBP to NZD Exchange Rate Fluctuates as Both Currencies Strengthened on Tuesday

February 13, 2018 - Written by Minesh Chaudhari

As both the Pound and New Zealand Dollar strengthened on Tuesday, the Pound to New Zealand Dollar (GBP/NZD) exchange rate fluctuated within a relatively narrow range throughout the day. The pair was influenced by UK Consumer Price Index (CPI) data and market demand for risky currencies.

Due partially to strong New Zealand job data last week, GBP/NZD plunged from 1.9334 to 1.9059 throughout the week – though it briefly touched on a high of 1.9449. Since markets opened this week, GBP/NZD has largely trended near the week’s opening levels.

GBP Boosted by Higher than Expected UK Inflation Rates

British consumer prices have continued to print higher than expected, indicating that domestic price pressures are strengthening despite the mixed performance of Britain’s economy in recent months.

Published on Tuesday, Britain’s January Consumer Price Index (CPI) results came in higher than expected in all major prints.

UK inflation was forecast to have fallen from 0.4% to -0.6% month-on-month, but instead only slipped to -0.5%.

Meanwhile, the year-on-year figure was expected to have slipped to 2.9%, but remained at a strong 3.0%.

On top of this, the yearly core inflation rate, which was forecast to rise from 2.5% to 2.6%, instead jumped to 2.7%.

This indicated to investors that British inflation was seeing strong domestic pressure rather than simply being driven by the Pound’s fall in value affecting imports.

According to analyst Fawad Razaqzada, the Pound’s mixed movement on Tuesday wasn’t entirely surprising and the BoE may be put off if other global factors cool;

‘It is worth noting that the Bank of England will probably not be surprised by the outcome of today’s inflation figures after it predicted that CPI will remain elevated and that it intends to combat this by raising interest rates earlier and faster than previously expected. But is the BoE correct in its projections? Can they be trusted?

While inflation could easily rise further, one has to consider the alternative scenario too. After all, the impact of Sterling’s post declines has fallen away.

…Given the ongoing Brexit uncertainty, the BoE would favour not having to hike rates if inflation were to fall back. So, an imminent rate hike is not a done deal by any means.’

NZD Supported by Rising Risk Sentiment

Demand for the New Zealand Dollar has been decent this week so far, despite a lack of notable domestic data since last week’s impressive New Zealand job market report.

Last week saw equity markets and global stocks briefly tumble, and the surprise fall in stocks left risky investments like the New Zealand Dollar unappealing.

As stocks have begun to recover in recent sessions, investors have been returning to the New Zealand Dollar. This has helped it to hold its ground against a strong Pound.

However, there is still caution and uncertainty in markets. The US Dow Jones Industrial Average stock index fluctuated again on Tuesday, which weighed slightly on market appetite for risk-correlated currencies.

GBP/NZD Forecast: Brexit Developments and Risk-Sentiment Remain in Focus

The Pound to New Zealand Dollar exchange rate may not be influenced much by data in the coming days, as investors are too focused on political and global factors like the Brexit process and the ongoing murky outlook in equities.

New Zealand data food inflation and business inflation expectations data will be published on Wednesday, followed by New Zealand’s January business PMI on Friday, but these may not be hugely influential.

If they impress, the New Zealand Dollar may resist against GBP/NZD recovery attempts. However, if stock markets continue to fluctuate and markets continue to find risky investments unappealing the pair may recover regardless.

Sterling is more likely to recover if there are any optimistic Brexit developments in the coming days. Investors are hoping for signs that the UK government will show more indication that it will agree to the EU’s ‘non-negotiable’ terms regarding a post-Brexit transition period.

More clarity on the UK government’s Brexit plans may also boost Bank of England (BoE) interest rate hike bets.

Friday will see the publication of Britain’s January retail sales result, but unless investors are given more clarity on the Brexit process soon Sterling’s potential data-influenced gains could be limited.
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