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GBP NZD Exchange Rate Falls as Traders Question BoE Rate Hike Odds

September 19, 2017 - Written by Tim Boyer

Yesterday saw the Pound open trading against the New Zealand Dollar in the region of 1.8623. By the close of daily trading, the Pound lost ground slightly to come in at 1.8605.

Pound Loses Ground on Lower Hopes of UK Interest Rate Hike

In a dramatic change of fortune for the Pound, the UK currency has dropped by -0.6% against the New Zealand Dollar.

This follows major gains at the end of the previous week, which were triggered by higher hopes of a near-term Bank of England (BoE) interest rate hike.

These hopes were fuelled by BoE minutes, as well as speeches from BoE Governor Mark Carney and official Gertjan Vlieghe.

Although Carney was widely claimed to be hawkish in his outlook last week, yesterday saw a more cautious speech from the Governor.

Speaking at an International Monetary Fund (IMF) event in the US, Carney warned that;

‘I would caution that the persistence of major secular factors pushing down on the long-run global equilibrium real rates still means that policy rates can be expected only to rise a limited extent at what can be expected to be a gradual pace, settling at levels significantly below those seen pre-crisis’.

While a seemingly impenetrable statement, this just means that the BoE could follow a limited path of interest rate hikes, instead of committing to a continuous stream of higher interest rates.

This has taken the wind out of traders’ sales, as it has effectively poured water on assumptions that the BoE could hike rates as early as November.

New Zealand Dollar Traders Shrug Off Slowing Consumer Confidence

The New Zealand Dollar has advanced against the Pound today, in spite of falling consumer confidence in the third quarter.

Forecasts had been for a rise from 113.4 points to 113.7, but the actual result was a dip to 112.4.

Although this was seemingly negative news, the NZD advance seen afterwards showed that there were still underlying positive factors for the news.

Commenting on the results was Dominick Stephens of Westpac Bank. Stephens said;

‘While consumer confidence has eased a little, households remain in good spirits.

Large numbers of households are reporting that their financial position has improved. And although expectations for the coming year have softened, households remain fairly upbeat about the economic outlook’.

Future GBP NZD Forecast: Pound could Turn Volatile on BoE Events and Sales Stats

Looking to the near-future, the Pound could lose more ground against the New Zealand Dollar if the Bank of England (BoE) continues to downplay expectations of higher interest rates.

Donald Kohn, a member of the BoE’s Financial Policy Committee (FPC) is due to speak imminently and could weaken the Pound with his remarks.

While Kohn is not part of the more notable Monetary Policy Committee (MPC), any remarks pertaining to BoE interest rate decisions or future policy might affect the Pound.

If Kohn happens to issue a dovish prediction for the UK economy then the Pound could slide further against the New Zealand Dollar.

Following on from this Wednesday will be the BoE FPC’s meeting, which may bring further forecasts for the UK economy.

The other main news on Wednesday will be national retail sales figures for August. Annual sales not counting fuel are forecast to remain at 1.5%, but in all other cases the reported level of sales is expected to slow.

The New Zealand Dollar could be influenced more immediately by this afternoon’s Global Dairy Price index. The regular posting shows any global changes in the price of dairy products.

Previously, a 0.3% rise was recorded, so another more significant increase could trigger a New Zealand Dollar advance.

Also out later tonight will be New Zealand’s current account figure for the second quarter. Unfortunately, projections are for a decline from a surplus to a deficit.

This is considered a more high-impact data release than the dairy figures, so it could override any positivity and leave the New Zealand Dollar weakened.
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