Anna 
The New Zealand Dollar (NZD) faced a decline against the Pound (GBP) midweek, succumbing to widespread risk aversion that impacted risk-on currencies like itself and the Australian Dollar (AUD). Concurrently, Sterling grappled with headwinds fueled by escalating recession concerns.
As of the latest update, GBP/NZD is trading at NZ$2.028, reflecting a more than 0.6% climb over the past 24 hours.
New Zealand Dollar (NZD) Exchange Rates Under Pressure in Risk-Off Climate
The New Zealand Dollar experienced weakening against various currencies on Wednesday, influenced by bearish market sentiment and heightened volatility in China. Lingering concerns over the bleak global economic forecasts presented at the close of 2023 continued to haunt investors, amplifying analysts’ warnings of impending challenges.
High inflation in several G7 nations, leading to increased living costs, coupled with restrictive monetary policies from multiple central banks, posed threats to business growth. In such an environment, investors typically seek refuge in safe-haven assets like the US Dollar (USD). However, the appeal of the ‘Greenback’ has been subdued by expectations of multiple interest rate cuts from the Federal Reserve in 2024.
Trading conditions remain sluggish, with additional headwinds for the ‘Kiwi’ arising from economic instability in China. Political volatility in the region has deterred investors, impacting both the Australian Dollar and NZD due to their close trading ties with China.
Despite these challenges, the New Zealand Dollar’s losses may be cushioned by the limited resilience of the Australian Dollar, given their positive correlation. Some economists express optimism about a robust recovery for Australia in 2024, citing expanding employment and incomes as key factors.
Pound (GBP) Gains Support Despite Bleak Economic Outlook
On Wednesday, the Pound managed to strengthen, notwithstanding growing fears of an impending recession. Despite lower-than-expected PMI data earlier in the week and a decline in business morale, the Pound found support. Weakness in the Pound’s trading partners led to its ascent across various exchange rates, with Sterling outperforming perceived-riskier currencies in times of low market morale.
Investor concerns persisted, however, regarding Britain’s economy, given the extended contraction in business activity and discussions around a prolonged monetary policy strategy from the Bank of England (BoE).
The finalised manufacturing PMI for December revealed a contraction to 46.2, marking the sector’s tenth consecutive decline. The downturn impacted manufacturers’ confidence, reaching its lowest level in a year and prompting renewed cost caution with cutbacks to stock levels, purchasing, and employment.
Additionally, the Institute of Directors (IOD) confidence index reflected poorly on GBP performance, as an increasing number of business leaders expressed pessimism about the economic outlook.
GBP/NZD Forecast: Potential for Lowering Amid AUD Boost
The Pound New Zealand Dollar exchange rate may face losses during the Asian session, opening lower if Australia’s finalised Judo PMIs report an increase in domestic business activity. Furthermore, anticipated growth in China’s service sector could bolster both Antipodean currencies, pushing GBP/NZD lower.
On the flip side, an upturn in the latest BoE consumer credit report could lend support to the Pound, signaling increased spending among UK consumers, a potential tonic for the UK economy amid prevailing uncertainties.
