Pound New Zealand Dollar Exchange Rate Recovers despite BoE Hike Uncertainty

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Rises amid Risk-Off Trade

The Pound New Zealand Dollar (GBP/NZD) exchange rate is recovering from an overnight slump this morning, in spite of the uncertainty surrounding the UK’s fiscal policy.

The GBP/NZD exchange rate is currently sitting at around NZ$1.9889, over 0.2% up from the morning’s opening rates.

Pound (GBP) Muted amid Lowering Rate Hike Bets

This morning is seeing the Pound (GBP) surrounded by cautious trade, as wariness over the UK’s fiscal plans takes hold. This could be capping GBP’s gains against a weaker New Zealand Dollar (NZD).

With Chancellor Jeremy Hunt’s delay of the fiscal plan from 31 October to 17 November, the Bank of England (BoE) has currently been left in the dark somewhat. The BoE is due to come to a decision on further interest rate hikes but will have to make this choice without knowing government fiscal policy.

As such, markets are now anticipating the possibility of a lower hike than the expected 75bps and are pricing to match a 50bps rate hike. Because of this, GBP is lacking support in the current session.

However, any potential losses are mollified by confidence in Rishi Sunak, with analysts understanding that he wishes to get the budget right.

Elsewhere, domestic issues continue to weigh on Sterling. The reappointment of Suella Braverman as Home Secretary may be worrying investors, following accusations of multiple breaches of the ministerial code.

Adding to the uncertainty is the political tension in Northern Ireland. With another election called as the DUP protests over the Northern Ireland Protocol, investors may be concerned over a lack of cohesion in the UK.

New Zealand Dollar (NZD) Clipped by Risk-Averse Mood

Despite the New Zealand Dollar (NZD) making gains during the overnight trade, the ‘Kiwi’ is struggling for support this morning.

This comes as the markets turn bearish and move away from riskier currencies such as NZD.

Market sentiment has soured ahead of the US core PCE price index – the Federal Reserve’s preferred measure of inflation. Economists expect the data to show that core inflation continues to climb, which could force the Fed to keep aggressively raising interest rates.

Restrictive policy from the Fed could slow global growth, which in turn is prompting a downbeat market mood today.

However, NZD’s losses may be limited by comments from Adrian Orr, Governor of the Reserve Bank of New Zealand (RBNZ). Orr stated:

‘The most obvious theme will be the resilience of our financial system to manage through challenging economic times. New Zealand is not unique in facing growing economic challenges — they are global in their making. However, New Zealand is well positioned to manage.’

This confidence in the New Zealand economy may be cushioning the downside in the ‘Kiwi’.

Pound New Zealand Dollar Exchange Rate Forecast: BoE Rate Hike in Focus

Looking ahead for the GBP/NZD exchange rate, the key pressure point may be next Thursday’s BoE interest rate decision.

The decision may have a mixed effect on Sterling, as markets have already priced in the expected 75bps hike. However, with a smaller hike now being predicted by analysts, investors may dent the Pound by readjusting their expectations.

For NZD, Tuesday brings the RBNZ’s financial stability report, alongside a press conference. Investors will be keeping a close eye on these, as any hawkish rhetoric towards inflation may boost the ‘Kiwi’.

John Mulcahey

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