Pound New Zealand Dollar (GBP/NZD) Exchange Rate Hits 3-Day High as Risk Sentiment Dents NZD

GBP/NZD Exchange Rate Climbs on Sombre Market Mood

(Updated 17:00, 21/04/2022) The Pound New Zealand Dollar (GBP/NZD) exchange rate rose through this afternoon’s session despite a lack of significant economic data, as a focus on events in Ukraine dampened risk appetite, applying downside to the risk-sensitive New Zealand Dollar (NZD).

While reports from Ukraine confirm that approximately 120,000 citizens have been prevented from leaving the beseiged city of Mariupol, the US and its allies pledged to come together to support Ukraine, at a meeting of the International Monetary Fund (IMF) today.

US Treasury Secretary Janet Yellen confirmed that a significant amount of the focus at this week’s IMF, World Bank and G20 meetings has been on Russia’s ‘reckless, devastating’ war in Ukraine.

Capping losses for Sterling, meanwhile, are hopes that the Bank of England (BoE) may tighten monetary policy to deal with mounting inflationary pressures.

While fears of a UK recession have dampened such hopes in recent days, some analysts interpreted today’s comments from BoE policymaker Catherine Mann to be optimistic.

Mann said, ‘we can look at whether or not an additional 25 basis points or more might be necessary in order to keep inflation anchored’; the ‘or more’ was considered to imply that Mann is considering a 50-bps rate hike at the BoE’s next meeting.

Original article continues below:

Pound New Zealand Dollar Exchange Rate Peaks, Softens ahead of IMF Seminar

The Pound New Zealand Dollar (GBP/NZD) exchange rate is falling this morning following a sharp upwards spike in yesterday’s session as New Zealand’s consumer price index missed expectations. Fuelling today’s downtrend is a cautious mood amongst GBP traders ahead of this afternoon’s IMF seminar.

At the time of writing, GBP/NZD is trading at NZ$1.9212, down 0.2% from today’s opening levels.

New Zealand Dollar (NZD) Sinks Following CPI Release

The New Zealand Dollar (NZD) plummeted against its peers late in yesterday’s session, following the release of below-forecast inflation data.

According to Statistics New Zealand, the country’s inflation rate climbed 1.8% over the previous quarter in the first three months of 2022, below predictions of 2%. On an annualised basis, inflation rose by 6.9% rather than the 7.1% forecast.

Upward inflationary pressure came from rising prices of housing and household utilities, influenced by construction and rental costs; while missing expectations, Q1 data marked a 30-year high in New Zealand’s CPI, amounting to the largest movement since a 7.6% annual increase in the year to the June 1990 quarter.

Nevertheless, investors worried that the Reserve Bank of New Zealand (RBNZ) may be less likely to hike interest rates by 50 basis points in May on account of the miss.

Economists, on the other hand, were more optimistic that the central bank would continue to pursue an aggressive tightening policy.

‘Uncertainty is high’ conceded ASB Bank officials, ‘but we could still see a 7% annual inflation print delivered in Q2 of this year.’

Economists at ANZ concur: ‘this domestic inflation is the kind that doesn’t go away quickly… This continued rise in domestic inflation pressures only reinforces the need for ongoing interest rate rises by the RBNZ.’

Pound (GBP) Sinks on Weak Growth Forecasts

The Pound (GBP) has relinquished its gains against the ‘Kiwi’ following yesterday’s brief upturn, as weak growth forecasts from the International Monetary Fund (IMF) weigh upon Sterling sentiment.

While the conflict in Ukraine rages on, the IMF predicts that mounting price pressures in the UK, exacerbated by geopolitical tensions, will slow economic growth as rising interest rates ‘cool investment’.

Significantly, UK inflation is expected to be 5.3% next year – the highest in the G7, and higher than all EU members, while a refugee crisis and aggravated political tensions, risk ‘more permanent fragmentation of the economy’.

While the IMF concedes that low UK growth rates forecast for 2023 are in part due to the UK rebounding more quickly from the pandemic other G7 nations, officials also note that Brexit continues to impede UK trade.

Meanwhile, opposition party MPs blame the government for Britain’s ‘uniquely bad situation’:

‘Inflation spiralling out of control this year has created a cost of living crisis hitting families across the country, needing decisive and urgent action,’ remarked Labour’s shadow chancellor Rachel Reeves, repeating Labour’s calls for a windfall tax on oil and gas firms.

Pound New Zealand Dollar Exchange Rate Forecast: BoE Comments to Influence Trading?

Looking ahead, a speech from the Bank of England (BoE)’s Catherine Mann may affect GBP exchange rates this afternoon, if Mann indicates at the direction the central bank’s forward guidance will take.

Fears of a recession are throwing doubt upon presumptions of BoE hawkishness, despite surging UK inflation and aggressive policy tightening from other central banks.

Elsewhere, further comments from today’s IMF seminar could sway the Pound New Zealand Dollar exchange rate; if forecasts continue bleak for the global economy, GBP/NZD could tumble further.

Olivia Evershed

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