Pound New Zealand Dollar (GBP/NZD) Exchange Wavers ahead of Bank of England Rate Decision

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Fluctuates as Markets Brace for Interest Rate Decision

The Pound New Zealand Dollar (GBP/NZD) exchange rate is struggling to find much demand in the face of the imminent interest rate decision from the Bank of England (BoE).

At time of writing, the GBP/NZD exchange rate is around $1.9277, relatively unchanged from this morning’s opening levels.

Pound (GBP) Pressured from Multiple Headwinds

The Pound remains lacklustre today as markets shift their focus to the BoE interest rate decision this afternoon.

Investors are expecting the central bank to raise the key interest rate for the seventh consecutive time. Expectations of a 50bps rate hike, which would bring the rate up to 2.25%, would bring the borrowing costs closer to 2008 highs. But there are fears that even a 75bps hike might not be sufficient in boosting Sterling. Economists at Commerzbank fell that the BoE are under increased pressure to deliver bold raises, they said:

‘The dire growth outlook, rising government debt and high current account deficit point towards depreciation pressure on sterling continuing for now.’

Meanwhile, world leaders have responded to Putin’s on-air threats of mobilisation and nuclear warfare. Prime Minister Liz Truss, in an address to the UN has dismissed Putin’s claims as signs of desperation. EU foreign ministers have also agreed upon new sanctions on Russia and to increase weapon deliveries to Ukraine. An eighth sanctions package is to be prepared, one that would target ‘more relevant sectors of the Russian economy and continue targeting people responsible for the war of aggression in Ukraine,’ said EU Foreign Policy Chief Josep Borrell.

New Zealand Dollar (NZD) Sours on Risk-Off Mood

Meanwhile, the New Zealand Dollar is also struggling for demand as waning global market sentiment has seen risk-sensitive currencies slide.

Also weighing on the ‘Kiwi’ is the larger-than-expected trade deficit in August. Higher raw material prices and a weakening currency has seen import costs skyrocket. A deficit of NZ$2.4bn, almost a billion more than July, and higher than NZ$2.1bn in August 2021. Meanwhile, imports increased by 22% from a year earlier, with higher purchases of petroleum and products. China accounted for the largest increase in both imports and exports as New Zealand’s trading partner.

Pound New Zealand Dollar Exchange Rate Forecast: Hawkish BoE to Raise Rates by 75bps?

Looking ahead, the market will be fully focused on the BoE interest rate decision this afternoon. Many are pricing in a 50bps rate hike but there is a chance that the central bank opts for a bolder move. But with the volatile market and a shaky economy, Sterling may struggle for demand if the BoE opts for anything less than 75bps.

Elsewhere, any further developments in Ukraine are likely to impact global market sentiment, and in turn, the New Zealand Dollar.

Danny Tingle

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