GBP/NZD Rate Plunges Low Six Days After BoE Decision
The New Zealand Pound to Dollar exchange rate (GBP/NZD) initially ticked higher today, but plunged following the Bank of England’s (BoE) interest rate decision.
As of this writing, the Pound (GBP) has yet to recover from its slide and is trading at a six-day low against the New Zealand Dollar (NZD).
New Zealand dollar (NZD) exchange rates are initially muted on GDP
The risk-sensitive New Zealand dollar held steady in overnight trading, despite the prevailing market mood for risk.
Any boost provided by upbeat investor sentiment was offset by weaker than expected GDP growth figures. The country’s GDP growth rate printed at 3%, just below forecasts of a 3.2% expansion, showing a slight recovery after the previous quarter’s 3.6% contraction.
Additionally, risk sentiment in the markets is rather nuanced at the moment.
Upbeat news of the Russian-Ukrainian crisis has often had a greater effect on the pound than on NZD, although the latter is generally considered the riskier of the two currencies. The risk on the market momentum that is supporting the “Kiwi” at present is positive Chinese economic news, as China and New Zealand’s economies are closely linked.
Tuesday night, Chinese Vice Premier Liu, he said that Beijing will introduce new policies to support markets and spark the growth of the Chinese economy. This sent the Asian stock markets soaring, and brought support to the “Kiwi”.
However, the upbeat news from Ukraine may actually have deterred NZD. The crisis in Ukraine has pushed commodity prices higher over the past few weeks, supporting the commodity-linked “Kiwi”. More recently, prices have stabilized – partly due to hopes that a peace deal can be reached – eliminating a key tailwind for the New Zealand Dollar.
In European trading, the New Zealand dollar fell slightly against the pound on the eve of the Bank of England (BoE) interest rate decision, but surged as the pound sterling s collapsed after BoE rate hike.
British Pound (GBP) Exchange Rates Plunge Following BoE Decision
Meanwhile, the pound initially strengthened today as hopes for a diplomatic solution to the Russian-Ukrainian war continued to support the pound.
In recent days, both Russian and Ukrainian diplomats have said talks are progressing and a compromise may be within reach. This culminated in a report last night that both sides had made “significant progress” towards securing a 15-point peace plan.
Given that the pound is a risk-sensitive currency and the British economy is exposed to the collateral economic damage of war, the pound has benefited from the encouraging news.
GBP was also boosted this morning ahead of the BoE’s interest rate decision. Markets had anticipated the 25 basis point rate hike, but some investors were hoping for even more hawkish action.
However, these bulls were disappointed. The bank’s Monetary Policy Committee (MPC) voted by an 8-1 majority to raise the bank rate from 0.5% to 0.75%. Vice Governor Jon Cunliffe, an outlier, voted to leave his rates unchanged. Following the decision, GBP/NZD fell 0.85% to a six-day low.
Although markets are expected to hike rates to 0.75%, the voting spread would have been more dovish than expected. Traders may have been expecting some of the MPC policymakers to vote for a steeper rate increase, which could have indicated a more aggressive tightening cycle in the upcoming meetings.
The BOE has also revised its inflation forecast, expecting inflation to increase by 8% this year. This fuel fears the UK’s cost of living crisis as real incomes from inflation and UK households are hit by higher taxes and energy bills.
GBP/NZD Forex Rate Forecast: Risk Sentiment In Focus
Going forward, we could see GBP/NZD stabilizing as markets digest the BoE decision and minutes away from the MPC meeting.
There is no economic data expected for the UK or New Zealand for the rest of the week, so risk appetite and news on the Russia-Ukraine crisis should dominate the Pound currency pair New Zealander.