The GBP NZD exchange rate surged on Thursday in response to the latest Bank of England (BoE) news. As the New Zealand Dollar has remained weak on New Zealand election jitters, the pair is unlikely to shed its recent gains in the coming days.
GBP NZD began the week trending at 1.8168 but has since surged to a three-month-high of 1.8662.
Pound (GBP) Outlook Soars on Bank of England (BoE) Speculation
Sterling’s recent recovery was given a huge boost on Thursday, as the Bank of England’s (BoE) September meeting minutes took on a surprisingly hawkish tone.
The bank left monetary policy frozen at its loosest levels on record as expected.
However, the meeting minutes showed that Britain’s economy was seeing stronger performance than many members of the Monetary Policy Committee (MPC) expected.
The minutes indicated that if Britain’s economy continues to perform at this level, the bank may be prepared to tighten UK interest rates at a faster pace than most of the market currently expects.
Previously, markets expected the BoE to tighten UK interest rates in late-2018 at the earliest. Since yesterday though, bets of a December interest rate hike have risen to above 50%.
This indication was reflected later in the session by hawkish comments from BoE Governor Mark Carney. Carney stated that most MPC members, including himself, believe that adjustment of interest rates may be necessary ‘in the coming months’ in order to tackle rising inflation.
His comments were supported on Friday by comments from BoE official Gertjan Vlieghe, who also stated that rates could rise in the coming months.
The Pound’s current strength is likely to continue in the coming week due to lasting market speculation that the BoE could tighten UK monetary policy before the end of 2017. This could even help the Pound to recover over a longer period.
Sterling strength could be limited if investors are shocked by poor UK data however. UK retail sales data from August will come in on Wednesday.
New Zealand Dollar (NZD) Weighed by Election Uncertainty
With just over a week to go until New Zealand’s 2017 general election, the surprisingly tight polls are making New Zealand Dollar traders anxious.
Since New Zealand’s Labour Party got its new leader, Jacinda Ardern, the party has surged in popularity.
In some polling measures, the Labour Party has even taken over the ruling National Party. This has caused uncertainty about which party will win the most seats or run the next government.
Some analysts have noted that the ‘Kiwi’ is now being influenced by political risk after years of domestic politics having little effect on the currency.
According to a report from Bloomberg, investors looking for an asset to bet against are currency choosing to short the New Zealand Dollar, meaning there could be further weakness for the ‘Kiwi’ ahead.
The New Zealand Dollar has seen no notable benefit from recent NZ ecostats, despite August’s NZ business PMI improving from 55.4 to 57.9.
More global factors, like US Dollar (USD) strength and jitters about North Korea geopolitical tensions have weighed on risk-correlated currencies like the ‘Kiwi’ too.
The New Zealand Dollar could be influenced more by domestic data in the coming week. New Zealand’s Q2 Gross Domestic Product (GDP) results will be published during Thursday’s Asian session.
Prices of dairy, New Zealand’s most lucrative commodity, could also influence NZD trade depending on next week’s Global Dairy Trade (GDT) auction results.
However, if general election polling remains tight, the ‘Kiwi’ outlook could remain limited until after the election is held on Saturday the 23rd.
GBP NZD Interbank Rate
At the time of writing this article, the GBP NZD exchange rate trended in the region of 1.8650. The New Zealand Dollar to Pound exchange rate traded at around 0.5362.
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