GBP/NZD Exchange Rate Sinks as ‘Kiwi’ Benefits from Improved Risk Sentiment
The Pound to New Zealand Dollar (GBP/NZD) exchange rate fell by -0.5% today after the risk-averse ‘Kiwi’ benefited from the US Federal Reserve’s announcement of an open-ended commitment to asset buying, easing pressure on commodity-correlated and emerging market currencies.
Analysts at Reuters commented:
‘[The New Zealand Dollar received] a relative calm spell on Wednesday after the Federal Reserve’s promise to print unlimited amounts of U.S. dollars eased liquidity constraints and boosted hard-hit risk assets.’
The ‘Kiwi’ is also benefiting from the Reserve Bank of New Zealand’s (RBNZ) buying up of $30 billion of government bonds to bolster New Zealand’s struggling economy amid the Covid-19 pandemic.
The RBNZ said in its statement earlier this week that weakened global activity and domestic measures to contain the outbreak had severely compromised the nation’s economic activity.
The NZD/GBP exchange rate is likely to face further volatility, however, as the ‘Kiwi’ continues to remain sensitive to the largely unpredictable global economic developments and the unfolding coronavirus pandemic.
GBP/NZD Exchange Rate Sinks as UK Inflation to ‘Decline Sharply’ in Coming Months
The Pound (GBP) struggled to gain on the ‘Kiwi’ today despite February’s stronger-than-expected inflation report from the Office for National Statistics (ONS). The year-on-year inflation figure for last month edged higher by 1.7%.
Samuel Tombs, the Chief UK Economist at Pantheon Macroeconomics, was downbeat in his assessment, considering the coronavirus’s negative impact on the British economy throughout March:
‘Looking ahead, CPI inflation looks set to decline sharply over the coming months and to fall comfortably below 1 per cent in the summer.’
Sterling has failed to benefit from Prime Minister Boris Johnson’s announcement of a nationwide lockdown, which will considerably hinder the economy in the first quarter and beyond.
However, the Pound is finding some modest support from growing hopes that the lockdown could lower the amount of coronavirus cases.
Today also saw Chancellor Rishi Sunak announce further measures to aid leisure and retail businesses would be granted government support throughout the Covid-19 crisis.
Mr Sunak commented:
‘Today, I am removing some the exclusions for this relief, so that retail, leisure, and hospitality properties that have closed as a result of the measures announced by the Prime Minister in his statement on Monday will now be eligible for the relief.’
GBP/NZD Outlook: Bank of England Rate Decision in Focus
Sterling investors will be looking ahead to tomorrow’s Bank of England (BoE) interest rate decision and monetary policy meeting. Any further quantitative easing measures from the central bank could provide some uplift for the GBP/NZD exchange rate.
If the BoE expands its bond purchasing programme this would provide further room for Downing Street to protect jobs and wages.
The New Zealand Dollar (NZD) will remain sensitive to market risk sentiment, with any signs of it souring amid fears of a global economic recession proving NZD-negative.