The Pound to New Zealand Dollar exchange rate (GBP/NZD) rallied slightly following last night’s New Zealand retail sales report. The disappointing data release showed that retail sales only increased by 0.7% in the first quarter, down from 1.2% in Q4 2013. Analysts had predicted a slightly better outcome of 0.9%.
In addition to the soft retail data the New Zealand Dollar was subject to fluctuations in reaction to Reserve Bank of New Zealand Governor Graeme Wheeler’s comments on the difficulty of raising rates. Wheeler commented that the tightening cycle could impact private consumption trends but concluded that the hikes are likely to keep on coming throughout the year.
The Sterling to ‘Kiwi’ Dollar exchange rate declined by one-cent during the London session yesterday as jittery investors looked to lock-in profit ahead of this morning’s important UK unemployment and inflation data.
The Pound has been performing fairly well against most of the majors recently – although admittedly less so against the New Zealand Dollar due to the RNBZ’s decision to start hiking interest rates – and it seems that investors took the opportunity to cash-in on the relatively strong Sterling exchange rate yesterday.
Markets are primed for a drop in the British unemployment rate to a fresh 5-year low of 6.8%, which has the potential to spur demand for the Pound. However, if the data disappoints there is room for Sterling to depreciate.
Similarly, this morning’s inflation report from the Bank of England is anticipated to show a sturdy growth outlook for the domestic economy and could feature a revision to the bank’s projected date for hiking interest rates. This too would likely benefit the Pound. On the other hand it is possible that policymakers will focus on the UK’s CPI inflation rate, which has recently fallen to 1.6% after spending four years above the 2.0% target.
GBP/NZD’s declines during yesterday’s session reflected a feeling of anxiousness among traders. Although today’s data releases carry the potential to send Sterling higher if they print inline with economists’ forecasts, they could hurt demand for the Pound if there are any nasty surprises.
The pullback yesterday means that there is room for robust gains in GBP pairs today if rate hike bets continue to grow.
The Pound to Euro exchange rate (GBP/EUR) is currently trading close to a 16-month high of 1.2287.
The Sterling to US Dollar exchange rate (GBP/USD) ran into resistance at 1.7000 last week and is subsequently trending lower at 1.6840.
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