August 14, 2018 - Written by Tim Boyer
STORY LINK GBP/NZD Exchange Rate News: Pound Sterling Drops after UK Wage Growth Slows
On Monday, the Pound to New Zealand Dollar exchange rate opened trading in the region of NZ$1.9376 and closed up higher around NZ$1.9411.
This slight appreciation was caused by positive speculation that Tuesday’s UK wage growth data could show a rise in June.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Slides on UK Wage Growth Slowdown
The Pound’s (GBP) -0.3% drop against the New Zealand Dollar (NZD) today has been caused by mixed UK labour market data.
The morning’s ecostats have revealed a surprise reduction in the unemployment rate – from 4.2% to 4%, the lowest level since 1975 – as well as a slowdown in the pace of wage growth.
In the latter case, June’s wage growth reading including bonuses slowed from 2.5% to 2.4%, going against expectations for no change or even a rise.
Explaining why this outcome lowers the odds of a near-term Bank of England (BoE) interest rate hike, Fidelity International Associate Director Emma-Lou Montgomery said:
‘This will not be what the BoE will have wanted to see, as one of the justifications for (its) decision to hike rates earlier this month was that it was expecting wage growth to start lifting off. This hasn’t happened yet.’
New Zealand Dollar to Pound (NZD/GBP) Exchange Rate Rises 0.3% on Low US Dollar Demand
The New Zealand Dollar (NZD) has firmed against the Pound (GBP) and most other currency peers today, rising in value thanks to the latest decline in US Dollar demand.
There has been limited NZ domestic data to support this advance against the Pound; the latest developments have focused on whether a weaker NZ Dollar is good for economic growth.
Arguing that a lower NZD is a sign of Reserve Bank of New Zealand (RBNZ) weakness, National Party leader Simon Bridges said:
‘[RBNZ Governor Adrian] Orr has kept the rates lower for longer, that’s a reflection ultimately of his lack of confidence in growth in our economy.’
Speaking in favour of a lower NZD – and potentially boosting demand for the currency – Finance Minister Grant Robertson said:
‘[A weaker New Zealand Dollar is] something our exporters would want and we are in the transition to a more export-led economy so this is something we have to look at on balance.’
Pound Sterling to New Zealand Dollar Exchange Rate Forecast: Is GBP/NZD Recovery ahead on UK Inflation Rate Data?
The Pound (GBP) might be able to reverse today’s losses and advance against the New Zealand Dollar (NZD) on Wednesday, depending on how UK inflation rate data prints.
July’s year-on-year inflation rate reading is predicted to show growth from 2.4% to 2.5%; by contrast the month-on-month figure is expected to shift from 0% to -0.1%.
The case for a GBP/NZD exchange rate rise on this news would be if Pound traders believe that there could be a Bank of England (BoE) interest rate hike because of higher inflation.
A faster pace of annual price growth doesn’t guarantee Pound Sterling gains, however; if GBP traders are more concerned about the negative effects of higher inflation then the GBP/NZD exchange rate could drop.
While rising inflation would put more pressure on the BoE to consider a near-term rate hike, it would also risk causing economic damage via wage squeeze conditions.
This is when the rate of inflation exceeds the pace of wage growth and can lead to reduced consumer spending and a gradual drop-off in retail sector activity.
It is also worth remembering that inflation has previously hit 3%, 1% above the BoE target range, without any interest rate adjustment from the UK central bank.
The next economic data from New Zealand is some way off, coming next Tuesday and consisting of global dairy price data.
The Global Dairy Trade price index has shown falling or flat dairy prices for the past five readings; if another drop in prices is reported then the New Zealand Dollar could slide against the Pound.
International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way,
ensuring you get the best exchange rates on your currency requirements.
TAGS: Pound New Zealand Dollar Forecasts