Pound Sterling to New Zealand Dollar (GBP/NZD) Exchange Rate Rises Over Two-Year High on UK Wage Data

September 11, 2018 - Written by David Woodsmith

STORY LINK Pound Sterling to New Zealand Dollar (GBP/NZD) Exchange Rate Rises Over Two-Year High on UK Wage Data

On Monday, the Pound to New Zealand Dollar exchange rate opened in the region of NZ$1.9781 and closed higher at a level of NZ$1.9979.

This appreciation was down to growing signs that Brexit talks could be wrapped up by November – EU Chief Negotiator Michel Barnier was responsible for such assumptions.

Proving how big an issue a successful Brexit deal is GBP traders, Mr Barnier sent the GBP/NZD exchange rate soaring when he said:

‘I think that if we are realistic we are able to reach an agreement on the first stage of this negotiation which is the Brexit treaty within six or eight weeks.’

Additional Pound Sterling support came from UK GDP readings for July, which showed above-forecast levels of growth during the month.

New Zealand Dollar traders only had the weekend’s manufacturing sales data to refer to – these revealed a year-on-year slowdown in Q2 2018, which printed at 2.1% compared to Q2 2017’s 2.3% reading.

Faster Pace of UK Wage Growth Triggers GBP/NZD Exchange Rate Rise

Pound Sterling (GBP) has made a minor rise against the New Zealand Dollar (NZD) today and continues to trade at the highest level since June 2016.

As well as receiving continued support from Monday’s comments by Michel Barnier, the Pound has also appreciated because of today’s jobs market data.

This has revealed that the pace of UK wage growth has risen during July, with and without bonuses factored in.

Considering what higher wage growth meant in relation to Bank of England (BoE) monetary policy, Hargreaves Lansdown Senior Economist Ben Brettell said:

‘The [BoE] looks at wage growth as a key driver of inflation.

‘The problem is that if wages grow without corresponding productivity growth - as we've seen in the UK - it means more money chasing the same quantity of goods and services, which pushes up prices.’

At the moment, wage growth is above the pace of inflation so the wage squeeze scenario alluded to by Mr Brettell is not currently hitting UK households.

Another piece of good news has been that the unemployment rate has remained at its lowest level since 1975, remaining unchanged at 4% despite some economists forecasting a 4.1% reading.

New Zealand Dollar to Pound (NZD/GBP) Exchange Rate Close on Card Spending News

While the latest economic data from New Zealand hasn’t been as headline grabbing as the UK figures, the New Zealand Dollar has still traded tightly against the Pound because of recent card spending stats.

These have revealed a 1.1% rise in overall card spending levels, alongside a 1% rise in card payments made for retail purchases.

These readings effectively mean that New Zealand’s economy is ticking over, as they show consumer spending steadily rising across the board.

Giving an optimistic prediction on consumer spending over the rest of 2018, Westpac Senior Economist Michael Gordon said:

‘We wouldn’t be surprised to see a temporary lift in consumer spending over the second half of this year.’

Pound Sterling to New Zealand Dollar Exchange Rate Forecast: Are GBP/NZD Gains ahead on BoE Meeting?

The UK has a relatively clean-sweep when it comes to economic events this week, as high-impact developments on Thursday and Friday should eclipse the sole upcoming New Zealand data release.

The next UK data, the week’s most significant event, will be Thursday’s Bank of England (BoE) meeting.

BoE policymakers could inspire greater GBP/NZD exchange rate gains if they hint at a 2019 interest rate hike; no change is expected to the current rate of 0.75% on Thursday.

BoE Governor Mark Carney is expected to answer questions about the Bank’s meeting on Thursday, followed by another speech on Friday.

Mr Carney has recently confirmed that he will be extending his tenure to January 2020 to see some of the Brexit process through, so he could provoke significant GBP volatility if he discusses future BoE plans.

The week’s only New Zealand data to watch out for will be Thursday’s business NZ PMI, which measures manufacturing sector activity.

This is predicted to show a slight reduction in sector output, which could cause NZD/GBP exchange rate losses.

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TAGS: Pound New Zealand Dollar Forecasts