Next resistance at 0.5725 is unlikely to come under threat

24-HOUR VIEW“Although we noted ‘a slight increase in upward momentum’ yesterday, we were of the view that NZD ‘is likely to trade in a higher range of 0.5605/0.5680.’ Instead of trading in a range, NZD rose, reaching a high of 0.5703. Upward momentum has increased further, albeit not much. Today, NZD could edge above 0.5705 before levelling off. The next resistance at 0.5725 is unlikely to come under threat. Support is at 0.5665; a breach of 0.5645 would mean that the current mild upward momentum has eased.”

1-3 WEEKS VIEW: “We highlighted two days ago (04 Feb, spot at 0.5625) that ‘the current price movements appear to be part of a range trading phase, likely between 0.5510 and 0.5705.’ Yesterday, NZD rose to within a couple of pips of 0.5705 (high of 0.5703). There has been a tentative buildup in momentum. From here, NZD could rise gradually to 0.5725. Currently, it is too soon to determine if NZD can break clearly above this resistance level. The upward pressure will remain intact as long as NZD remains above the ‘strong support’ level, currently at 0.5615.”

GBP/USD to top out this quarter in the 1.25/26 area

“However, the external environment may sour if US Treasury yields rise again, which is the house view. And the brief reprieve in the tariff noise should allow investors to refocus on the UK’s fiscal and monetary mix. Fiscal will be a story for March, but today the monetary angle reappears with the Bank of England meeting.”

“We expect an 8-1 vote to cut rates and a downward revision to growth forecasts to be a mild sterling negative. Much more negative would be a 9-0 vote, should arch-hawk Catherine Mann vote for a rate cut. We continue to favour GBP/USD topping out this quarter in the 1.25/26 area and see a strong case for it to be trading close to 1.19/20 later this year.”

• GBP/JPY falls swiftly to near 188.40 as two BoE MOC members favored large interest rate cuts.
• The BoE sees a temporary uptick in inflation before returning to the 2% path due to higher energy prices.
• BoJ Tamura sees interest rates to rise to at least 1% by the second half of the fiscal year beginning in April.

The GBP/JPY pair faces an intense sell-off and dives vertically to near 188.40 in Thursday’s North American session, the lowest level seen in two months. The cross plummets after the Bank of England’s (BoE) monetary policy meeting in which the central bank reduced its key borrowing rates by 25 basis points (bps) to 4.5%.

The BoE was already expected to cut interest rates but with an 8-1 vote split. However, the outcome of the policy meeting showed that all Monetary Policy Committee (MPC) members favored an interest rate cut decision. Above that, two members supported a larger-than-usual reduction of 50 bps.

Market participants have considered BoE members’ support for large interest rate cuts a dovish message for the monetary policy outlook. However, BoE Governor Andrew Bailey has guided a cautious and gradual rate cut approach amid expectations that the United Kingdom (UK) headline Consumer Price Index (CPI) could temporarily accelerate to 3.7% before resuming its downside journey towards the central bank’s target of 2%.

Andrew Bailey has refrained from committing to a preset rate-cut path. However, market participants have raised dovish expectations that the BoE will cut three times more this year. Before the BoE meeting, traders fully priced in two rate cuts for the entire year after Thursday’s monetary policy meeting.

Meanwhile, the Japanese Yen (JPY) performs strongly across the board amid growing expectations that the Bank of Japan (BoJ) will raise interest rates further this year. BoJ hawkish bets accelerate after board member Naoki Tamura must raise interest rates to at least 1% by the second half of the fiscal year beginning in April, Reuters reported. Tamura’s hawkish guidance was based on the assumption that there would be broad-based pay increases, which would lift price pressures.

• EUR/GBP refreshes weekly high near 0.8380 after the BoE reduced its interest rates by 25 bps to 4.5%, as expected.
• Surprisingly, BoE policymaker Catherine Mann supported a larger-than-usual interest rate reduction of 50 bps.
• The BoE sees a temporary uptick in price pressures due to higher energy prices.

The EUR/GBP pair surges and posts a fresh weekly high to near 0.8380 in Thursday’s North American session. The cross strengthens as investors have dumped the Pound Sterling (GBP) after the Bank of England’s (BoE) monetary policy decision in which the central bank reduced its key borrowing rates by 25 basis points (bps) to 4.5%.

Traders had already priced in a 25-bps interest rate decision but with an 8-1 vote split. However, all Monetary Policy Committee (MPC) members supported an interest rate cut and two out of them (Swati Dhingra and Catherine Mann) favored a larger reduction by 50 bps. Investors were shocked after seeing Catherine Mann’s support for a larger-than-usual rate cut as she has been an outspoken hawk.

Apart from an ultra-dovish tone from the MPC, downwardly revised Gross Domestic Product (GDP) forecasts have also weighed on the British currency. BoE’s monetary policy report shows that the central bank has projected a decline in the United Kingdom’s (UK) growth rate by 0.1% in the last quarter of 2024 against the 0.3% economic expansion projected in November. The central bank has also revised GDP growth for the current quarter lower to 0.1% from 0.4%.

It appears that the conversion of Catherine Mann’s restrictive stance to ultra-dovish is driven by a weak economic outlook.

Meanwhile, the BoE expects a temporary acceleration in the headline Consumer Price Index (CPI) to 3.7% before returning to the 2% path due to a rise in energy prices.

On the Euro (EUR) front, the outlook of the shared currency has weakened as ECB policymaker and Governor of Bank of Portugal Mario Centeno said in an interview with Reuters on Wednesday that interest rates could move below the neutral rate “sooner rather than later”. ECB Centeno’s dovish remarks were based on the assumption that the Eurozone economy is unable to hold inflation near the central bank’s target of 2%.