GBP/NZD Exchange Rate Up 0.5% after BoE Official Backs Interest Rate Hike

June 21, 2018 - Written by Ben Hughes

STORY LINK GBP/NZD Exchange Rate Up 0.5% after BoE Official Backs Interest Rate Hike

On Wednesday, the Pound to New Zealand Dollar exchange rate opened in the region of 1.9081 and closed higher at 1.9178.

UK domestic data proved supportive during the morning, when Confederation of British Industry (CBI) industrial orders stats showed forecast-beating levels of growth in June.

Rising Support for BoE Interest Rate Hike Pushes GBP/NZD Exchange Rate Up

The Pound (GBP) has risen by 0.5% against the New Zealand Dollar (NZD) today, thanks to an unexpected change after the Bank of England (BoE) Monetary Policy Committee (MPC) meeting.

This has left Pound Sterling trading at a rate of NZ$1.9276, the best exchange rate since late May.

On the one hand, it was another ‘business as usual’ meeting with a majority of the nine BoE voters backing no change to interest rates.

On the other, the margin between rate hike and rate freeze narrowed, with the formerly cautious Andy Haldane voting to raise interest rates along with two others.

Mr Haldane was a new addition to the pro-rate hike contingent and this news boosted hopes for an August interest rate hike.

Indicating that the BoE’s economic outlook had also improved, the bank’s minutes said:

‘This judgment appears broadly on track.

‘A number of indicators of household spending and sentiment have bounced back strongly from what appeared to be erratic weakness.’

There were plenty of economic commentators responding to the surprise development – on the positive side, Kallum Pickering of Berenberg Bank said of the news:

‘Today’s surprise vote for a rate hike by BoE Chief Economist Andy Haldane shifts the balance of probability for the next hike to the August meeting.

'Previously we had called for a November hike, with a risk of a potential move in August already.

'However, the minutes from the June meeting show that, despite heightened uncertainty about the global economy linked to trade tensions, the Monetary Policy Committee (MPC) is confident that growth has rebounded to around its trend rate in Q2 after a soft patch in Q1.’

Staying more cautious by comparison, Institute of Directors Senior Economist Tej Parikh said:

’The [BoE] MPC risks dampening confidence with a premature rate hike, particularly while political noise continues to bring uncertainty for businesses.’

New Zealand GDP Slowdown Causes NZD/GBP Exchange Rate Losses

In a less positive situation, the New Zealand Dollar to Pound (NZD/GBP) exchange rate has declined today because of disappointing GDP growth data for the first quarter of this year.

GDP growth rate stats have shown a slowdown on the quarter and the year, which prompted Capital Economics economist Paul Dales to say:

‘GDP growth is by no means falling off a cliff, but the end of the migration and housing booms have already caused a marked slowdown and they probably mean growth will ease to just 2% next year.

‘Against that backdrop, the Reserve Bank of New Zealand (RBNZ) is unlikely to raise interest rates until 2020.’

GBP/NZD Exchange Rate Forecast: Are Further Pound to New Zealand Dollar Gains ahead on BoE Bulletin?

Looking ahead, the Bank of England (BoE) could remain a source of support on the Pound to New Zealand Dollar (GBP/NZD) exchange rate before the weekend.

The BoE’s next quarterly bulletin will be out on Friday and might further support the chances of a BoE interest rate hike in August.

If the document gives an optimistic economic outlook for the rest of 2018, then GBP traders could take this as a sign that an interest rate hike this year is more likely.

A GBP/NZD exchange rate advance could come from such an assumption, resulting in a weekly trading high before the weekend.

Beyond this UK data release, the New Zealand Dollar (NZD) might be affected by the NZ trade balance reading out on the coming Tuesday.

The measure of trade exports and imports is forecast to show a shift from a surplus to a deficit range in May, which might devalue the New Zealand Dollar.

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