GBP/NZD: Fundamental Analysis | Next Target SHORT
Updated
The Pound New Zealand Dollar (GBP/NZD) exchange rate plunged despite the Bank of England (BoE) raising interest rates at the sharpest rate since 1997, but the mood soured with the accompanying bleak economic outlook.
At time of writing GBP/NZD traded around $1.9253, a sharp drop of 0.60% from the morning’s opening levels.
Pound (GBP) Plunged amid Stark BoE Recession Warning
The Pound (GBP) dropped sharply as the BoE issued a worrying assessment of the UK economy going forward. With the market expecting a bumper 50bps rate hike, the central bank delivered just that, but it wasn’t enough to prevent Sterling from sliding against its peers.
The BoE raised interest rates by 0.5% to 1.75%, the biggest rise in 25 years. Accompanying the decision was a bleak economic outlook that weighed heavily on the Pound. The central bank expected the UK to enter a recession by the end of the year which would remain for five consecutive quarters. The BoE issued a statement saying:
‘GDP growth in the United Kingdom is slowing. The latest rise in gas prices has led to another significant deterioration in the outlook for activity in the United Kingdom and the rest of Europe.
‘Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative.’
BoE Governor Andrew Bailey spoke at the press conference that followed the central bank’s decision and stated that a rise in energy prices contributed greatly to the inflationary pressures and expects the UK to enter a recession later this year. Economists at Commerzbank echoed the governor’s comments but believes that the BoE have not done enough to bring inflation under control:
‘At 1.75%, the bank rate has probably not even reached the "neutral level" at which the economy is neither boosted nor dampened. We therefore continue to expect further interest rate hikes to 2.75% by early 2023.
New Zealand Dollar (NZD) Remained Buoyant amid Risk-On Trade
The New Zealand Dollar (NZD) enjoyed moderate strength against most of its peers as an improving global market sentiment supported the risk-sensitive ‘Kiwi’.
However, that market sentiment could soon turn sour as the tense relationship between the US and China could shift the market to a more risk-averse mood. Despite multiple warnings from China, US House of Representatives Speaker Nancy Pelosi became the first high profile US official to visit Taiwan in 25 years.
Beijing swiftly reacted to the visit by engaging in live-fire air and sea military drills around Taiwan. Despite the US and Taiwan not having official diplomatic relations, Hsiao Bi-khim is the de-facto representative, and shared a picture from Taiwan’s Ministry of Defence in which it confirmed activating its defence systems. Bi-khim said of China’s show of force:
‘China’s irresponsible and dangerous behaviour has jeopardised regional peace. Taiwan will resolutely defend ourselves.’
Elsewhere, the southern hemisphere ‘winter of discontent’ is underway as the firefighters’ union have announced plans for industrial action and will strike later in the month. With disputes over pay and resources at the heart of the issue, the New Zealand Professional Firefighters Union will strike for one hour on two separate days.
GBP/NZD Exchange Rate Forecast: Dovish BoE to Continue Weighing on the Pound?
Looking ahead, the Pound New Zealand Dollar exchange rate could see further movement as a lack of data will leave GBP/NZD vulnerable to market mood. The market will continue to digest the dovish hike and subsequent bleak outlook from the BoE.
Elsewhere, the ongoing souring relations between the US and China will likely weigh on global market sentiment, potentially damaging the risk-sensitive ‘Kiwi’.
At time of writing GBP/NZD traded around $1.9253, a sharp drop of 0.60% from the morning’s opening levels.
Pound (GBP) Plunged amid Stark BoE Recession Warning
The Pound (GBP) dropped sharply as the BoE issued a worrying assessment of the UK economy going forward. With the market expecting a bumper 50bps rate hike, the central bank delivered just that, but it wasn’t enough to prevent Sterling from sliding against its peers.
The BoE raised interest rates by 0.5% to 1.75%, the biggest rise in 25 years. Accompanying the decision was a bleak economic outlook that weighed heavily on the Pound. The central bank expected the UK to enter a recession by the end of the year which would remain for five consecutive quarters. The BoE issued a statement saying:
‘GDP growth in the United Kingdom is slowing. The latest rise in gas prices has led to another significant deterioration in the outlook for activity in the United Kingdom and the rest of Europe.
‘Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative.’
BoE Governor Andrew Bailey spoke at the press conference that followed the central bank’s decision and stated that a rise in energy prices contributed greatly to the inflationary pressures and expects the UK to enter a recession later this year. Economists at Commerzbank echoed the governor’s comments but believes that the BoE have not done enough to bring inflation under control:
‘At 1.75%, the bank rate has probably not even reached the "neutral level" at which the economy is neither boosted nor dampened. We therefore continue to expect further interest rate hikes to 2.75% by early 2023.
New Zealand Dollar (NZD) Remained Buoyant amid Risk-On Trade
The New Zealand Dollar (NZD) enjoyed moderate strength against most of its peers as an improving global market sentiment supported the risk-sensitive ‘Kiwi’.
However, that market sentiment could soon turn sour as the tense relationship between the US and China could shift the market to a more risk-averse mood. Despite multiple warnings from China, US House of Representatives Speaker Nancy Pelosi became the first high profile US official to visit Taiwan in 25 years.
Beijing swiftly reacted to the visit by engaging in live-fire air and sea military drills around Taiwan. Despite the US and Taiwan not having official diplomatic relations, Hsiao Bi-khim is the de-facto representative, and shared a picture from Taiwan’s Ministry of Defence in which it confirmed activating its defence systems. Bi-khim said of China’s show of force:
‘China’s irresponsible and dangerous behaviour has jeopardised regional peace. Taiwan will resolutely defend ourselves.’
Elsewhere, the southern hemisphere ‘winter of discontent’ is underway as the firefighters’ union have announced plans for industrial action and will strike later in the month. With disputes over pay and resources at the heart of the issue, the New Zealand Professional Firefighters Union will strike for one hour on two separate days.
GBP/NZD Exchange Rate Forecast: Dovish BoE to Continue Weighing on the Pound?
Looking ahead, the Pound New Zealand Dollar exchange rate could see further movement as a lack of data will leave GBP/NZD vulnerable to market mood. The market will continue to digest the dovish hike and subsequent bleak outlook from the BoE.
Elsewhere, the ongoing souring relations between the US and China will likely weigh on global market sentiment, potentially damaging the risk-sensitive ‘Kiwi’.
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