Pound New Zealand Dollar (GBP/NZD) Exchange Rate at Monthly Low on Signs of BoE Dovishness

December 19, 2019 – Written by Frank Davies

Dovish BoE Tilt Drags Down Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate

The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate extended its slide in the wake of the Bank of England’s (BoE) December interest rate announcement, hitting a fresh monthly low.

While the BoE left interest rates on hold once again the overall tone of the meeting appeared to take a dovish tilt, leaving the Pound under pressure against its rivals.

As two members of the Monetary Policy Committee (MPC) again voted in favour of an immediate interest rate cut the odds of monetary policy easing in the first half of 2020 appeared to increase.

Commenting on the meeting minutes, Morten Lund, analyst at Nordea Markets, noted:

‘The outlook of the economy remains weak and the uncertainty about the phase two negotiations concerning the future relationship with the EU persists. The BoE also see the risk skewed to the downside in relation to its economic projections.’

Accelerating NZ Growth Shores up New Zealand Dollar Exchange Rates

Support for the New Zealand Dollar, meanwhile, strengthened on the back of a solid third quarter gross domestic product report.

Although forecasts had pointed towards the headline growth rate accelerating from 2.1% to 2.3% on the year this still encouraged NZD exchange rates to gain fresh ground on Thursday.

Markets also took confidence from the better-than-expected nature of the accompanying quarterly growth data, which surged from 0.1% to 0.7%.

All in all, this suggests a greater level of resilience within the New Zealand economy, adding to the appeal of the higher-yielding New Zealand Dollar.

New Zealand Dollar Vulnerable to Underwhelming Consumer Confidence Index

Even so, NZD exchange rates may struggle to hold onto their positive footing ahead of the weekend if December’s ANZ Roy Morgan consumer confidence index fails to impress.

Any softening of domestic confidence could see the New Zealand Dollar fall out of favour once again, with weaker sentiment likely to weigh on growth in the fourth quarter.

A renewed sense of market risk aversion may also put a dampener on NZD exchange rates in the near future as the impact of the US-China trade agreement fades.

As long as the global trade outlook remains muted and the risk of a resurgence in US-China trade tensions remains the strength of the New Zealand Dollar could prove limited.

Negative Consumer Confidence Set to Extend GBP/NZD Exchange Rate Losses

With no real change expected from the finalised third quarter UK gross domestic product data the GBP/NZD exchange rate could struggle to find a rallying point in the near term.

Another month of negative sentiment for the GfK consumer confidence index may drag the Pound further away from its recent highs as the risk of a fourth quarter slowdown remains.

Lower levels of consumer confidence and spending could see the UK economy struggle to hold onto its momentum in the final three months of the year, exposing GBP exchange rates to fresh selling pressure.

Unless consumer sentiment can show signs of recovery in the face of ongoing Brexit-based uncertainty support for the Pound looks set to deteriorate further.

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TAGS: Pound New Zealand Dollar Forecasts