GBP/NZD Exchange Rate Drops on Dismal BoE Forecast
The Pound New Zealand Dollar (GBP/NZD) exchange rate plummeted this afternoon following the Bank of England (BoE)’s interest rate decision and subsequent press conference. Meanwhile, the New Zealand Dollar (NZD) has been buoyed by risk-on trading sentiment.
At the time of writing, GBP/NZD is trading at NZ$1.9295, down 0.4% from today’s opening levels.
Pound (GBP) Slumps as BoE Outlook Turns Gloomy
The Pound dropped against its peers following the Bank of England’s rate decision at midday. Although the bank raised interest rates by 50bps as expected, the announcement was accompanied by downbeat comments from the Monetary Policy Committee (MPC).
The BoE’s decision took the overall interest rate to 1.75%, marking the largest rise in 25 years. On its own this was a hawkish move, as only one member of the MPC voted to increase rates by a smaller amount.
However, the bank’s commentary struck a dovish tone, with policymakers highlighting soaring inflation. The central bank warned that inflation is set to hit 13% this year – revised up from earlier forecasts of 11%.
‘Inflationary pressures in the United Kingdom and the rest of Europe have intensified significantly since the May Monetary Policy Report,’ said the BoE; ‘That largely reflects a near doubling in wholesale gas prices since May, owing to Russia’s restriction of gas supplies to Europe and the risk of further curbs.’
The Bank of England also warned that the UK would enter a recession later this year, given slowing economic growth amid heightening inflationary pressures. Governor Andrew Bailey added that unemployment is also expected to rise from next year.
New Zealand Dollar (NZD) Firms despite Tensions in China
The New Zealand Dollar (NZD) has firmed against its peers through this afternoon’s session, buoyed by a stronger risk appetite and optimistic expectations for the Reserve Bank of New Zealand (RBNZ).
Trading sentiment has been positive overall today, as a soft stance surrounding the US Dollar (USD) allows for gains in perceived-riskier currencies; upbeat forecasts for multiple central banks buoy morale despite increasing speculation of a recession.
Geopolitical tensions between America and China have been unable to dampen appeal for the ‘Kiwi’: relationships are strained following US House of Representatives speaker Nancy Pelosi’s visit to Taiwan yesterday.
Chinese officials were vocal in their disapproval of Pelosi’s visit, calling it a ‘serious violation of the One-China principle’ that will have a ‘severe impact’ on the political foundation of China-US relations.
Buoying NZD are upbeat forecasts for a 50bps rate hike in August from the RBNZ. According to TD Securities (TDS), yesterday’s mixed employment data from New Zealand has reaffirmed bets for further policy tightening:
‘Wages rose 1.3% quarter-on-quarter, bringing annual wage growth to 3.4%, the fastest since 2008.
This is likely to add to non-tradeables inflation (domestic prices) in the quarters ahead. We expect the RBNZ to continue hiking by 50 bps at its August meeting given record high inflation and a tight labour market.’
Pound New Zealand Dollar Exchange Rate Forecast: AU Data to Affect ‘Kiwi’ Movement?
Looking ahead, the Pound New Zealand Dollar exchange rate may trade on Australian data tomorrow, given a lack of significant releases in either the UK or New Zealand.
The Reserve Bank of Australia (RBA) are scheduled to give a statement on monetary policy during the Asian session. If the central bank strike an upbeat tone, NZD could climb alongside its sister currency; meanwhile, GBP may continue to trend lower on ongoing BoE headwinds.