PBoC May Help Improve EUR/USD In The Coming Weeks, NZD Ahead Of RBNZ Interest Rate Decision

Summary:

• The ECB is under increasing pressure due to an inflation issue.
• GBP/EUR exchange rate has recovered significantly from last week's lows.

Eurozone facing energy crisis

The market is reflecting bullish signals for this currency pair. Recently, there hasn't been much reason to be happy about the Euro to Dollar exchange rate, but there is a chance that it could improve significantly in the weeks ahead if the Peoples' Bank of China (PBoC) is still committed to stabilizing a closely correlated Renminbi before a crucial event in the Chinese political calendar. The sabotage of the Nordstream pipelines last week has exacerbated the energy challenges facing Europe's economies at the same time that the European Central Bank (ECB) is under increasing pressure due to an inflation issue, which is having a negative overall impact on the euro. These new developments have further strengthened the already pessimistic analyst community, with some now predicting that the euro would lose another 8% of its value by year's end, bringing its losses to more than 20% for 2022.

✕ EUR/USD Price Chart

Euro & GBP expect support this week

The market is reflecting bearish signals for this currency pair. The Pound to Euro exchange rate has recovered significantly from last week's lows, but the outlook for further growth is unclear. It may be that the best that Sterling can hope for in the days to come is to meander sideways in a pattern of range-bound consolidation close to technical resistance at 1.1419. With both currencies now expected to find themselves better supported against the dollar this week, the danger is of a range trade in GBP/EUR. Sterling opened last week with large falls against numerous currencies, but less so against a Euro that also moved deeper below the parity level.

The Office for National Statistics' (ONS) Friday announcement that its estimate of second-quarter GDP growth had been revised upward, indicating that the UK economy avoided a technical recession last quarter, and the most recent current account deficit figures both contributed to the Sterling-Euro rate's recovery last week. The UK economic data calendar for this week is not particularly noteworthy, but BoE Monetary Policy Committee member Catherine Mann is scheduled to give a speech on Monday night at an event sponsored by the CD Howe Institute with the working title "The path back to 2 percent," which will be significant for Sterling.

✕ EUR/GBP Price Chart

RBNZ interest rate announcement Wednesday

The nature of the Reserve Bank of New Zealand's (RBNZ) rate announcement on Wednesday may determine whether recent significant gains in the Pound's value relative to the New Zealand Dollar are maintained, increased, or reversed. Markets anticipate the RBNZ to increase rates by another 50 basis points, although analysts and market pricing indicate the central bank is nearing the end of its cycle of rate increases.

Anything less would be a significant "dovish" outcome and impact on the New Zealand Dollar. The RBNZ must deliver a 50bp boost and satisfy market expectations for the size of future hikes for the NZD to defend current levels.

✕ GBP/NZD Price Chart

Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com