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Pound New Zealand Dollar (GBP/NZD) Exchange Rate Picks Up as UK Wages Hit Record High

January 22, 2019 - Written by Frank Davies

Record Low UK Unemployment Boosts Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate

The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate gained ground after UK wage growth bettered forecast in the three months to November.

Rather than holding steady at growth of 3.3% average weekly earnings instead accelerated to growth of 3.4% on the year.

With wages continuing to significantly outpace inflation confidence in the underlying health of the UK economy improved, offering the Pound a boost against its rivals.

The accompanying unemployment rate also offered GBP exchange rates support as it fell to a fresh low of 4.0%.

Even though this tightening of the labour market is unlikely to spur the Bank of England (BoE) into imminent action the data still gave the GBP/NZD exchange rate a leg up.

Solid New Zealand Services PMI Supports New Zealand Dollar (NZD) Exchange Rates

Although the New Zealand services PMI eased from 53.4 to 53.0 in December this was not enough to weigh down NZD exchange rates on Tuesday.

As the sector continues to deliver solid growth the data encouraged bets of a relatively strong performance from the fourth quarter gross domestic product.

While worries remain over the outlook of the New Zealand economy, particularly with global growth looking set to slow in 2019, the New Zealand Dollar remained on a generally positive footing.

Even so, the GBP/NZD exchange rate was still able to gain ground thanks to the strength of Tuesday’s UK labour market data.

New Zealand Dollar (NZD) Exchange Rates Vulnerable to Weaker Inflation

The Pound could make further gains against the New Zealand Dollar on Tuesday night if the fourth quarter New Zealand consumer price index disappoints.

Forecasts point towards the headline inflation rate easing from 1.9% to 1.8% on the year, moving further below the Reserve Bank of New Zealand’s (RBNZ) 2% target.

With inflation also forecast to stagnate on the quarter the mood towards the New Zealand Dollar could easily sour.

As the RBNZ has already taken a relatively dovish outlook on monetary policy another weak inflation reading would add to the case for monetary policy to remain on hold for longer.

With market risk appetite looking unlikely to pick up in the near future NZD exchange rates could struggle to hold onto a positive footing.

Weaker CBI Business Optimism Index to Weigh on GBP/NZD Exchange Rate

Confidence in the Pound could soon diminish, though, in the wake of January’s CBI business optimism index.

Markets expect to see the index fall further into negative territory, sliding from -16 to -22 at the start of 2019.

With Brexit-based uncertainty rife there is the risk of an even sharper decline in business sentiment as worries over the outlook of the UK economy mount.

Unless the index surprises significantly to the upside the GBP/NZD exchange rate may come under pressure on Wednesday morning, especially if signs continue to point towards a lack of progress on Brexit.
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