Pound New Zealand Dollar Exchange Rate Falls as BoE Holds Rates

The Pound New Zealand Dollar (GBP/NZD) exchange rate has trended lower over the past week after the Bank of England (BoE) left interest rates unchanged.

Meanwhile, falling New Zealand unemployment fuelled bets that the Reserve Bank of New Zealand (RBNZ) could hike interest rates more aggressively, helping push GBP/NZD to touch an 11-month low yesterday.

What’s Been Happening: Pound Sinks on BoE Decision

The Pound (GBP) plunged last week after the BoE surprised markets by holding interest rates at 0.1%.

After investors had increasingly expected a rate hike ahead of the meeting, the monetary policy committee’s (MPC) vote of 7-2 to keep rates unchanged triggered a Sterling selloff.

The Bank also cut its growth forecasts for the UK and raised inflation expectations, seeing a peak of 5% by next April.

At the same time, New Zealand’s third quarter unemployment rate falling to an all-time low of 3.4%, from 4% in the second quarter, provided more evidence of the country’s strong economy.

The data provided a boost to NZD exchange rates as expectations increased for the RBNZ to raise interest rates more aggressively.

Prime Minister Jacinda Ardern announcing lockdown restrictions would ease in Auckland on 29 November further bolstered the New Zealand Dollar at the start of this week.

Three Things to Watch Out for This Week

  1. UK GDP

Third quarter UK GDP growth may weigh on the Pound later in the week, with forecasts pointing to growth slowing to 1.5%, down from 5.5% between April and June.

  1. Brexit-Related Tensions

Ongoing UK-EU talks over the Northern Ireland protocol may also dent Sterling this week. Speculation is growing that the UK will use Article 16 to suspend parts of the protocol, potentially escalating UK-EU tensions and leading to trade disruption.

  1. RBNZ Rate Hike Speculation

Against a backdrop of positive economic data and Covid-19 restrictions easing, signs of the New Zealand economy strengthening may fuel speculation that the RBNZ may hike interest rates more aggressively.

Pound New Zealand Dollar Forecast

The Pound New Zealand Dollar exchange rate could come under pressure again this week if UK economic growth worries rise and Brexit tensions escalate.

However, amid a lack of NZ data releases, any souring of market risk appetite may weigh on NZD exchange rates.

Andrew Roberts

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