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Pound New Zealand Dollar Exchange Rate to Plummet on Modest BoE Rate Hike?

Pound New Zealand Dollar

Pound New Zealand Dollar Exchange Rate Wavers ahead of BoE Interest Rate Decision

The Pound New Zealand (GBP/NZD) exchange rate is trading narrowly today as mounting economic and political pressures weigh on the Pound ahead of the Bank of England’s (BoE) crucial interest rate decision.

At time of writing the GBP/NZD exchange rate is around $1.932, relatively unchanged from this morning.

Pound (GBP) Under Pressure amid Brexit Backlash

The Pound is trading in a narrow band today as GBP investors brace for the BoE’s interest rate decision on Thursday.

Concerns are mounting that the BoE is not doing enough to combat inflation and is lagging behind other central banks. The bank is expected to deliver a 25bps hike tomorrow but some analysts warn this is not enough.

Michael Hewson, Chief Market Analyst at CMC Markets, comments:

‘A 25bps hike tomorrow is likely to fall well short of what is required, and while it is true that some of the factors driving prices higher are out of the central banks control, its simply unacceptable for the Bank of England governor to wring his hands and claim there’s nothing they can do about it.’

Other headwinds weighing on the Pound are Brexit jitters, and the threat of Scottish independence.

Scotland’s First Minister Nicola Sturgeon announced she is planning to stage a fresh Scottish independence vote next year, and without authority from Boris Johnson’s government.

On top of the European Union pursuing legal action against the UK’s decision to change the Northern Ireland protocol, Johnson is coming under fire from every angle, with Sturgeon saying:

The Pound could come under increased pressure as continued political uncertainty does little to inspire confidence and is likely to deter investors.

New Zealand Dollar (NZD) Set to be Buoyed with Hawkish RBNZ?

The New Zealand Dollar (NZD) could continue to fluctuate this week, with the publication of GDP data for the first quarter of 2022. Despite an expected slowdown in growth in Q1, forecasts of an 0.6% expansion is still on the cards, potentially providing a modest boost to the New Zealand dollar.

However, some experts are revising expectations of a modest expansion, and instead are expecting a contraction. Standard Chartered expect a contraction in growth, due to the Omicron wave weighing on the economy and a primary cause for slowdown. However, optimism remains going forward as expectations of a strong pick up in June remain, and experts at the bank said:

‘Given that Q1 GDP is backward-looking and weakness can be attributed to the Omicron wave, we think it may not do much in dampening the central bank’s hawkish tone for now.’

With the continued hawkish stance of the Reserve Bank of New Zealand, the Kiwi could enjoy modest gains despite the expected drop in economic growth.

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