The GBP rightly sinks lower this week as the Bank of England defies rates market expectations of a 15bps rate hike. The Bank of England has communicated by this decision that they fear hindering growth by raising rates too quickly more than the risk of rising inflation. This seems a fair assessment given that pent up savings should mean some inflation can be managed by businesses and consumers. However, rates traders were pricing in a full four 25 bps of rate hikes for next year. Those bets are now being sharply withdrawn and this is sinking the GBP.
The RBNZ, by contrast, has record-high employment data and inflation pressures. Westpac now expects the RBNZ to move interest rates up to 3% in 2023. This means there is a clear sell bias for the GBPNZD pair. Also, check out the strong seasonals.
Over the last 15 years, the GBPNZD has fallen nearly 75% of the time between November 13 and December 30 with an average fall of -1.71%%. The largest gain was in 2013 with a 3.85% rise. The largest loss was in 2015 in the Brexit referendum period where it registered a -6.91% loss.
Major Trade Risks: A sharp rise in employment or inflation for the UK could invalidate this outlook.