Pound (GBP) Slumps against New Zealand Dollar (NZD) as Markets Anticipate a Disappointing March Budget

February 27, 2020 – Written by John Cameron

Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Falls Ahead of March Budget

The Pound Sterling New Zealand Dollar (GBP/NZD) exchange rate slumped on Thursday, leaving the pairing trading at around NZ$ 2.0378.

The Pound suffered losses today against a handful of currencies as disappointment over March’s UK budget grew.

Chancellor Rishi Sunak is unlikely to provide the fiscal stimulus that was expected, dampening Sterling sentiment.

Sunak has been told by Treasury officials that there is no way for him to up public spending while simultaneously keep tax low as Prime Minister Boris Johnson would like.

Due to this, the Chancellor could postpone loosening any policy until later this year.

Sterling had been able to make significant gains earlier this month, fuelled by the possibility of Britain’s finance minister increasing public spending.

Meanwhile, the Bank of England (BoE) may be forced to step in and boost the economy if Sunak is unable to stimulate growth through higher public spending.

Sterling fell as investors currently have a 25 basis point cut from the bank priced in by August this year.

New Zealand Dollar (NZD) Makes Gains despite Covid-19 Fears

The New Zealand Dollar continued to slide lower as risk appetite declined as the rate of Covid-19 infections outside of China grew.

The rate of infection outside of China was now higher than the rate inside the country, increasing fears the epidemic will become a pandemic.

Fears jumped after the United States reported its first infection of an unknown origin. This caused the Centers for Disease Control and Prevention warned of the possibility of community spread.

The ‘Kiwi’ remained under pressure despite US President Donald Trump stating that the US was ‘very, very ready’ to face the threat of the virus.

While the comments seemed to be designed to calm markets, Hamish Pepper, fixed income and currency strategist at Harbour Asset Management said ‘the market latched onto the more worrying aspects.’

He also added:

‘The ‘Kiwi’ just can’t help be caught up in that. It won’t be able to perform well in an environment where equities are falling by large amounts.’

Pound New Zealand Dollar Outlook: Will Weak Confidence Send GBP Lower?

Looking ahead, the Pound (GBP) could extend its losses against the New Zealand Dollar (NZD) following the release of UK confidence data.

If GfK shows that consumer confidence slumped in February, Sterling sentiment will be left under pressure.

Meanwhile, the ‘Kiwi’ could be left on the back foot if the number of coronavirus cases increases across the globe.

If cases outside China continue to increase at a faster pace, the risk-sensitive New Zealand Dollar could edge lower.

However, the upcoming budget is likely to weigh on the Pound, and offset the Covid-19 weakness in NZD. This would cause the Pound New Zealand Dollar (GBP/NZD) exchange rate to suffer further losses.

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TAGS: Pound New Zealand Dollar Forecasts