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Pound New Zealand Dollar (GBP/NZD) Exchange Rate Falls as Two BoE Policymakers Vote in Favour of Rate Cut

November 7, 2019 - Written by John Cameron

Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Slides as BoE Downgrade Growth Forecasts

The Pound Sterling New Zealand Dollar (GBP/NZD) exchange rate slumped after the Bank of England (BoE) left interest rates on hold, leaving the pairing trading at around NZ$2.0130.

In the last monetary policy meeting before the 12th December election, the BoE left rates unchanged at 0.75%, with seven out of nine policymakers voting for the move.

Sterling was left under pressure as two policymakers, Jonathan Haskel and Michael Saunders unexpectedly voted to lower rates to 0.5%.

Added to this, the BoE Monetary Policy Report said that weaker global growth and new assumptions about Brexit has caused the bank to decrease UK growth by 1% over the next three years compared to its forecast in August.

Meanwhile, during his speech following the decision, Governor Mark Carney warned the outlook had darkened and the world risks falling into ‘a low growth, low inflation rut.’

He also added that the bank may need to ease policy if global growth fails to stabilise and if the UK remains weighed down by Brexit uncertainties.

New Zealand Dollar (NZD) Rises as Trump-Xi Signing Likely to be Delayed

The risk-sensitive New Zealand Dollar rose against the Pound on Thursday despite reports revealing the US and China may delay the signing of the ‘Phase One’ trade deal.

An anonymous official from the Trump administration said the long-awaited meeting between US President Donald Trump and his Chinese counterpart, Xi Jinping could be delayed until December.

They also added that it was still possible a deal would not be reached, but did note it was more likely a deal would be secured than not.

The official said that London is currently being considered, with the President due to attend the NATO summit between the 3rd and 4th December.

Commenting on the report, head of economist and strategy at Mizuho Bank, Vishnu Varathan wrote in a note:

‘It is not the timing [small delay] that is worrying. Instead, [it is] more negotiation tensions requiring more time that an inadvertent delay may reveal and the ensuring final/finer details of an interim deal that really matter.

‘The ability to progress beyond the relatively low-hanging fruits of the ‘Phase 1’ deal will be threatened to a greater degree by pre-existing tensions at this stage, than a mere timing delay due to logistical issues.’

However, reports on Thursday that China has agreed with the USA to cancel, in phases, the tariffs imposed during the trade war.

This likely sparked an upswing in risk appetite as Chinese Commerce Ministry spokesman, Gao Feng said:

‘In the past two weeks, the lead negotiators from both sides have had serious and constructive discussions on resolving various core concerns appropriately.

‘Both sides have agreed to cancel additional tariffs in different phases, as both sides make progress in their negotiations.’

Pound New Zealand Dollar Outlook: Will US-China Optimism Buoy NZD?

Looking ahead, the New Zealand Dollar (NZD) is likely to react to further reports about the US-China trade negotiations.

If reports reveal the leaders have secured a location to sign the ‘Phase One’ trade deal, it is likely the ‘Kiwi’ will rise against the Pound (GBP).

Meanwhile, Sterling is likely to be left under pressure as further political uncertainty mounts and the UK hurtles towards the 12th December general election.

If reports suggest that the Conservatives are unlikely to retain power, it will likely spark further uncertainty, and cause the Pound New Zealand Dollar (GBP/NZD) exchange rate to extend its losses.

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