Pound to New Zealand Dollar Exchange Rate Plummets after BoE Interest Rate Hike

November 2, 2017 - Written by David Woodsmith

STORY LINK Pound to New Zealand Dollar Exchange Rate Plummets after BoE Interest Rate Hike

Before today’s catastrophic devaluation of the Pound, the GBP/NZD pairing had been making progressive gains over the week.

The Pound to New Zealand Dollar rate started off around 1.9147 on Monday, later hitting a peak of 1.9420 on Tuesday.

Since then, the pairing has declined, sliding from 1.9273 to 1.9237 on Wednesday’s trading session.

Pound Dives despite Long-Awaited BoE Interest Rate Hike

The Pound has plummeted against the New Zealand Dollar today, in an unexpected response to the Bank of England (BoE) raising interest rates.

As many traders had predicted, the BoE pushed the UK rate up from 0.25% to 0.50%, making this the first interest rate hike in over a decade.

While such news would normally be fuel for an immediate Pound rally, Sterling has instead worsened in trading against all of its regular peers.

This is because of the Bank of England’s (BoE) outlook, which remains extremely gloomy and does not suggest any more rate hikes for the foreseeable future.

In a key statement from the BoE minutes, the bank said;

‘The overshoot of inflation throughout the forecast predominantly reflects the effects on import prices of the referendum-related fall in Sterling.

Uncertainties associated with Brexit are weighing on domestic activity, which has slowed even as global growth has risen significantly.

Brexit-related constraints on investment and labour supply appear to be reinforcing the marked slowdown that has been increasingly evident in recent years in the rate at which the economy can grow without generating inflationary pressures’.

This has been the consistent message from today’s proceedings – Brexit has been bad for the UK economy and could get a lot worse.

Such an outlook has done little to inspire optimism among Pound traders, who had been hoping for a brighter outlook from the bank.

Voicing the opinion of many economists was Peter Hemington, BDO LLP Head of Corporate Finance;

‘The long journey to wean the country off cheap credit has finally begun. Financial markets may have foreseen the rise but struggling households will be less prepared.

Increased loan and mortgage repayments- along with existing inflation pressures and stagnant wage growth – spell difficult times ahead for UK consumers’.

New Zealand Dollar Buoyant after Better-than-Expected Unemployment Drop

Cementing the Pound’s status as the weaker half of the currency pairing, the New Zealand Dollar has been in high demand today because of recent unemployment rate data.

It was reported that the Q3 unemployment rate had fallen from 4.8% to 4.6% during the period, a better result than the anticipated 4.7%. At 4.6%, NZ unemployment is now around the lowest level in nine years.

While business confidence for October has recently tumbled, NZD traders have remained optimistic because of the high-impact unemployment news.

Given that the Labour-NZ First coalition has only just taken power, it is perhaps understandable that Bill English of the previous National Party has claimed most of the credit for the lower jobless rate.

Pound to New Zealand Dollar Exchange Rate could Slip Further on Services Stats

In the aftermath of today’s Bank of England (BoE) interest rate decision, it is entirely possible that the Pound will continued to be affected over the course of today and Friday.

If traders are quick to absorb the news, however, then the Pound may face another decline on Friday morning’s UK services PMI reading.

This is more significant than the manufacturing and construction readings, which both showed growth earlier in the week.

The services sector covers tourism and healthcare activities in the UK, along with high-profile financial services activity in the City of London.

Current forecasts are for a slowdown in services sector activity, from 53.6 points to 53.3 in October.

While a minor dip, this could still unsettle traders given that the services sector is the largest contributor to UK economic growth.

The next significant economic news from New Zealand won’t come until November 7th, when the Global Dairy Trade price index is announced.

This looks at reported changes in global dairy prices during the latest session; previously in October a -1% drop was reported.

If the cost of dairy rises sharply then the New Zealand Dollar could advance, given that dairy exports make up a significant portion of the country’s economy.

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TAGS: Pound New Zealand Dollar Forecasts