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Pound New Zealand Dollar (GBP/NZD) Exchange Rate Dips, Covid-19 a ‘Severe Blow’ to UK Economy

GBP/NZD Exchange Rate Falls as Coronavirus Hits UK Economy

The Pound New Zealand Dollar (GBP/NZD) exchange rate fell by -0.4%. Sterling’s gains were capped after the UK Prime Minister Boris Johnson announced the nation’s new approach to the coronavirus pandemic. The pairing is currently trading around NZ$2.02.

Mr Johnson also warned that Covid-19 would present a ‘severe blow’ to the British economy.

As fears continuing to rise over the health of the UK’s economy going forward, the GBP/NZD exchange rate is likely to remain subdued throughout the week.

Robert Wood, UK Economist at the Bank of America Merrill Lynch, commented:

‘We expect the [Bank of England (BoE)] to cut interest rates 15 [basis points] to their effective lower bound probably before their 26 March meeting, or otherwise at that meeting. With 10y yields 20-30bp above that lower bound, and the government potentially needing a much larger fiscal expansion, there may now be some point in gilt [quantitative easing].’

Sterling traders will be awaiting Chancellor Rishi Sunak’s announcement of a rescue package for businesses being hit by the coronavirus outbreak.

The Pound (GBP) slipped following today’s release of the UK ILO Unemployment Rate for January. The report showed that unemployment had risen unexpectedly by 3.9%.

NZD Improves Following NZ Economic Support Package

The New Zealand Dollar (NZD) edged higher against the Pound (GBP) following NZ Government’s announcement of $12.1 billion economic support package for the economy.

Imre Speizer, a Currency Strategist at Westpac, commented:

‘Other factors are hurting markets all around the world and are dominating … [The New Zealand Dollar] will probably out-perform the Aussie over the next day or so and quite correctly – the stimulus here is much bigger than it has been there.’

However, following the Reserve Bank of New Zealand’s (RBNZ) interest rate cut on Sunday and rising fears over a global economic recession, the ‘Kiwi’s gains are likely to be short-lived.

Mayank Mishra, a Macro Strategist at Standard Chartered, said:

‘However, we expect the weak growth outlook and risk sentiment to continue to weigh on the currency, which is likely to continue to underperform low yielding G10 peers like the JPY, CHF and EUR.’

GBP/NZD Outlook: ‘Kiwi’ to Sink on Economic Uncertainty?

New Zealand Dollar (NZD) investors will be looking ahead to tomorrow’s publication of the New Zealand Growth report for the fourth quarter. Any signs of growth slipping would further weaken the appeal of the ‘Kiwi’.

The GBP/NZD exchange rate will continue to remain sensitive to coronavirus developments. If the epidemic threatens to throw the global economy into a recession, we could see the risk-sensitive ‘Kiwi’ sink.