UK Wage Growth Misses its Mark, Pound New Zealand Dollar (GBP/NZD) Exchange Rate Falls
The outlook for the Pound New Zealand Dollar (GBP/NZD) exchange rate grew increasingly gloomy on Tuesday as investors responded to news that wage growth in the UK suffered an unexpected slowdown.
According to the Office for National Statistics (ONS), full average weekly earnings increased by 2.5% in the three months to April, down from the previous period’s rise of 2.6%.
Excluding bonuses, the reading also disappointed, falling from 2.9% to 2.8% and confounding forecasts that it would remain steady.
This news weighed on the outlook for the Pound, with investors anxious that the Bank of England (BoE) – who has previously used wage growth as a gauge when determining monetary policy – would shy away from a rate rise this summer as a result.
Ben Brettell, Senior Economist at Hargreaves Lansdown echoed this outlook, stating:
‘Policymakers had been thought to be considering raising rates in August, but I still think a rate rise this year looks unlikely. The Bank will almost certainly want confirmation that the Q1 growth figure was just a blip before raising borrowing costs’.
In slight better news, however, investors were pleased to see that unemployment in the UK held at its 43-year low of 4.2%, whilst a substantial 143,000 new jobs were added – news that may have prevented Sterling from falling too drastically.
New Zealand Dollar (NZD) Exchange Rate Outlook Tied to Global Trade Conditions
Once again the New Zealand Dollar (NZD) has found itself awash in the ebb and flow of global trade sentiment, with risk appetite fluctuating rapidly in relation to trade misgivings between the US and other world superpowers.
Investors continued to step cautiously around the ‘Kiwi’ Dollar, with news that Canada, Mexico and the EU are all planning tariff responses against the US (to initiate around the 1st of July) escalating trade tensions and diminishing risk appetite.
In better news for NZD bulls, however, the Trump-Kim summit in Singapore has been deemed a success, and North Korea’s commitment to pursue nuclear disarmament has prompted a small recovery in market risk appetite.
On the data front, this week’s calendar is looking rather sparse for New Zealand, though Thursday’s NZ business manufacturing PMI could prove significant given the previous period’s substantial score of 58.9.
US Fed Rate Decision on the Horizon – What can we Expect for the Pound New Zealand Dollar (GBP/NZD) Exchange Rate?
Tomorrow the US Federal Reserve will announce their latest rate decision, and the vast majority of economists expect it to be a rate rise.
What is less well known, however, is the forward guidance (if any) that the bank will provide.
Given today’s 2.8% surge in US inflation, it could be safe to assume that the bank will need to shift its policy tightening measures into top gear, but exactly how much they will reveal in this regard is anyone’s guess.
If the US Fed points to 4 rate hikes this year then we could see demand get siphoned away from the riskier currencies like NZD and AUD, which could then provide GBP/NZD with a small boost.
If the bank remains tight-lipped, however, then NZD may prove resilient.