Coronavirus Jitters Leave Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Surging

Pound to New Zealand Dollar Exchange Rate Climbing with Bank of England Decision Ahead

Market concerns about the spread of a coronavirus from China worsened over the weekend, leading to fresh Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate gains today. The New Zealand Dollar (NZD) is tumbling on global risk-aversion.

Last week saw mixed movement in GBP/NZD. GBP/NZD climbed from the interbank level of 1.96 to 1.97, but was unable to hold highs in the region of 1.99.

However, since markets opened this week GBP/NZD has already seen another jump in demand, amid New Zealand Dollar weakness. At the time of writing, GBP/NZD is trending in the region of 1.99 again.

Pound (GBP) movement is mixed, being driven more by strength in rivals. It comes ahead of an anticipated Bank of England (BoE) decision due for later this week.

Pound (GBP) Exchange Rates Benefit from Rival Weakness Ahead of BoE Decision

The Pound (GBP) is climbing against most major currency rivals today. This is largely due to market risk-aversion, rather than any strong fresh support for the Pound.

Instead, the Pound’s support is actually mixed. Investors remain anxious, ahead of the Bank of England’s (BoE) January policy decision later in the week.

Recent UK data has shown that Britain’s economic performance was poor in late-2019. While 2020 data has hinted at signs of recovery, they have not been enough to completely douse market speculation of a more dovish Bank of England.

Many analysts continue to warn that despite last week’s strong data, a rate cut this week is still possible. According to Jim Reid, Strategist at Deutsche Bank:

‘This (BoE) meeting follows a run of fairly weak economic data over the last few weeks but with last week’s strong employment data and better than expected flash PMIs confusing the picture,

Our economists have expected a cut for a good couple of months now but markets are closer to 50:50.’

New Zealand Dollar (NZD) Exchange Rates Plunge on Coronavirus Jitters

Weekend news that a coronavirus outbreak in China is continuing to spread at a fast rate, left investors more anxious when markets opened on Monday.

As the New Zealand Dollar (NZD) is a currency often correlated to market risk and trade sentiment, it slumped. This was the primary cause of today’s GBP/NZD gains.

For much of last week, markets had been hoping that attempts from officials to prevent spread of the virus would limit its potential damage. However, as the virus has already seen notable spread in China, markets are becoming more anxious again.

According to Elsa Lignos, Global Head of FX Strategy at RBC Capital Markets:

‘While some analysts argue the fear will be worse than reality with the coronavirus (pointing to the low mortality rate), no one is anticipating a Spanish flu repeat – the bigger worry is the economic impact of containment and quarantine strategies, particularly in China,’

Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Awaits Bank of England (BoE)

The Pound to New Zealand Dollar (GBP/NZD) exchange rate is likely to be driven by global risk developments for the time being. Markets are hesitant to move much on the Pound (GBP).

If investor jitters about the coronavirus soften again, hopes about the relative strength of New Zealand’s economic outlook could help the New Zealand Dollar (NZD) to recover.

However, if coronavirus spread concerns worsen or if Thursday’s New Zealand trade balance stats disappoint investors, the New Zealand Dollar could be in for further losses.

The biggest event for the Pound this coming week, will likely be Thursday’s Bank of England (BoE) policy decision.

A more cautious tone from the BoE or a surprise rate cut could lead to significant Pound losses. Meanwhile, optimism around an economic rebound would help Sterling to solidify further gains.

With the BoE’s January policy decision on Thursday and the formal Brexit date set for Friday, this week could be a highly notable one for the Pound to New Zealand Dollar (GBP/NZD) outlook.

Josh Jeffery

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