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Pound New Zealand Dollar (GBP/NZD) Exchange Rate Rallies in Spite of BoE’s Quantitative Easing Expansion

November 5, 2020 - Written by Frank Davies

Bank of England’s Monetary Loosening Fails to Drive Down Pound New Zealand Dollar Exchange Rate

Reaction to the Bank of England’s (BoE) November policy announcement helped to push the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate higher on Thursday.

Even though the central bank announced an expansion of its quantitative easing programme this failed to weigh on demand for the Pound.

Investors instead took encouragement from the fact that policymakers did not make any renewed mention of negative interest rates, suggesting that the prospect remains distant.

As the BoE looks set to remain on hold for the remainder of the year the downside potential of GBP exchange rates proved limited.

Although the BoE’s latest economic forecasts were less encouraging in nature, pointing towards a -11% growth contraction for 2020, this failed to dent the Pound.

The government’s decision to extend its furlough scheme until March offered additional encouragement to the GBP/NZD exchange rate, easing anxiety over the outlook of the UK labour market for the time being.

New Zealand Dollar Benefits from Ongoing Lack of Clarity Over US Presidential Election

On the other hand, the New Zealand Dollar found some renewed traction against its rivals thanks to the relative weakness of the US Dollar.

As market risk appetite picked back up this limited the downside potential of NZD exchange rates, even in the absence of any fresh domestic data.

With the uncertainty over the US presidential election outcome looking set to extend for some days to come at least this helped to spur a recovery in market sentiment.

Even so, this positivity could ultimately prove short-lived as an extended period of political uncertainty in the US may put pressure on the global economic outlook in the final months of the year.

A smaller-than-expected improvement in the ANZ business confidence index for November put some pressure on NZD exchange rates, meanwhile.

As sentiment remained firmly seated in negative territory at -15.6 this left investors with limited incentive to favour the New Zealand Dollar over its rival at this juncture.

Underwhelming Halifax House Price Index Forecast to Weigh on Pound

Friday’s UK Halifax house price index report may not prompt any significant volatility for the GBP/NZD exchange rate.

However, if price growth shows signs of faltering on the month this may still stoke worries over the outlook of the UK economy.

A weaker housing market could increase the risk of the wider economy slowing in the months ahead, given that prices have recently proved one of the main bright spots in the UK.

Unless prices can demonstrate another solid month of growth in October the GBP/NZD exchange rate may see some of its strength fading.
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