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The Pound to New Zealand Dollar (GBP/NZD) exchange rate slipped to a one-month low on Tuesday after stronger-than-expected New Zealand inflation reinforced expectations for further Reserve Bank of New Zealand interest rate hikes.

At the time of writing, GBP/NZD was trading around NZ$2.2939, down approximately 0.2% on the day.

Latest — Exchange Rates:
Pound to New Zealand Dollar (GBP/NZD): 2.295692 (+0.02%)
Euro to New Zealand Dollar (EUR/NZD): 1.956495 (+0.29%)
New Zealand Dollar to Dollar (NZD/USD): 0.5827 (-0.43%)

DAILY RECAP:

The New Zealand Dollar (NZD) appreciated through Tuesday's Asian trading session as markets digested New Zealand's latest consumer price index.

According to the CPI figures published by Stats NZ, annual inflation accelerated to 4.1% in the second quarter, up from 3.1% previously and above market forecasts of 4.0%.

Perhaps more importantly, the Q2 inflation print also outpaced the Reserve Bank of New Zealand’s previous 3.9% forecast.

This prompted NZD investors to increase their bets on further monetary tightening after the RBNZ's recent decision to lift the Official Cash Rate to 2.5%.

However, the ‘Kiwi’ was unable to sustain its best levels for long, with NZD exchange rates falling back by the start of the European session as market risk appetite was sapped by the continued escalation of tensions in the Middle East.

Meanwhile, trade in the Pound (GBP) was broadly flat on Tuesday as the UK's latest jobs report helped to calm concerns over turbulence in the UK bond market at the start of the session.

The Office for National Statistics (ONS) reported that unemployment held steady at 4.9% in May, against forecasts it would rise to 5.0%, while employment growth accelerated from 100,000 to 147,000 against consensus estimates it would drop to 85,000.

The surprisingly robust jobs data was welcomed by GBP investors as it increased the chances of the Bank of England (BoE) tightening monetary policy later in the year.

However, Sterling's upside potential remained capped after the start of Andy Burnham's premiership triggered a rise in UK gilt yields as he signalled his willingness to exercise flexibility while still adhering to fiscal rules.

Near-Term GBP/NZD Forecast: Slowdown in UK Inflation to Sap Sterling? Looking ahead, the next catalyst for the Pound to New Zealand Dollar exchange rate will be the UK's latest inflation figures.

Economists expect UK inflation to have cooled further in June, with Sterling likely to come under pressure if the data weakens expectations for further Bank of England interest rate hikes.

Meanwhile, the ‘Kiwi’ could face headwinds if New Zealand's latest credit card spending figures point to a slowdown in consumer spending last month.

The Pound to New Zealand Dollar (GBP/NZD) exchange rate opens the new week around 2.3239 after slipping to its lowest level in almost two weeks, with the New Zealand Dollar continuing to outperform as markets respond to a more hawkish Reserve Bank of New Zealand.

Latest — Exchange Rates:
Pound to New Zealand Dollar (GBP/NZD): 2.323928 (-0.10%)
Euro to New Zealand Dollar (EUR/NZD): 1.979635 (-0.06%)
New Zealand Dollar to Dollar (NZD/USD): 0.576117 (-0.03%)

WEEKLY RECAP:

GBP/NZD drifted lower through the second half of last week after failing to hold above the 2.35 level.

Sterling remained broadly supported.

Markets continue to expect the Bank of England to proceed cautiously on interest rates despite signs that UK growth has moderated.

Recent UK inflation data remains above target, helping to underpin the Pound even as business surveys point to a softer economy.

In its latest FX briefing, ING noted that Sterling continues to trade primarily on domestic economic and political developments rather than broad US Dollar moves.

The New Zealand Dollar has strengthened.

The Reserve Bank of New Zealand surprised markets last week by raising the Official Cash Rate and signalling that inflation risks linked to the Middle East energy shock and a stronger domestic economy warranted a tighter policy stance.

Governor Anna Breman also highlighted evidence that the economic recovery is gathering momentum, supported by exports, tourism and improving business confidence.

MUFG said in its latest weekly outlook that New Zealand interest-rate expectations have shifted materially higher, with investors continuing to price additional tightening before year-end.

The improving outlook for the Kiwi Dollar has coincided with a broader recovery in global risk appetite, encouraging demand for higher-yielding currencies.

Near-Term GBP/NZD Forecast: China GDP and New Zealand Business Confidence in Focus For Pound Sterling, attention this week turns to Thursday's UK monthly GDP estimate for May, together with industrial production, manufacturing production and trade balance figures.

Stronger-than-expected data would reinforce confidence that the UK economy is proving more resilient than recent business surveys suggest.

For the New Zealand Dollar, the focus will be on Wednesday's Q2 NZIER Survey of Business Opinion, retail card spending, house price data and remarks from the RBNZ's Chief Economist.

Investors will also pay close attention to China's second-quarter GDP, industrial production and retail sales, given China's importance as New Zealand's largest export market.

A stronger Chinese growth report and another improvement in New Zealand business confidence would likely provide further support for the Kiwi Dollar.

However, if UK GDP surprises to the upside while Chinese data disappoints, GBP/NZD could rebound towards 2.35.

The Pound to New Zealand Dollar (GBP/NZD) exchange rate fell sharply on Wednesday after the Reserve Bank of New Zealand (RBNZ) raised its Official Cash Rate by 25 basis points to 2.50%, boosting the 'Kiwi' as policymakers struck a more hawkish tone than many investors had anticipated.

At the time of writing, GBP/NZD was trading at NZ$2.3369, down around 0.6% on the day after retreating from recent six-month highs.

Latest — Exchange Rates:
Pound to New Zealand Dollar (GBP/NZD): 2.337366 (-0.61%)
Euro to New Zealand Dollar (EUR/NZD): 1.99811 (-0.54%)
New Zealand Dollar to Dollar (NZD/USD): 0.571431 (+0.70%)

DAILY RECAP:

The New Zealand Dollar (NZD) rallied after the Reserve Bank of New Zealand increased the Official Cash Rate by 25 basis points to 2.50%, marking the first increase in the current tightening cycle.

Importantly, the decision was reached by consensus, with both the Reserve Bank's internal members and external Monetary Policy Committee members backing the rate increase after the previous meeting ended in a split vote.

The Committee said monetary policy remains stimulatory and that a modest reduction in that stimulus was appropriate to help ensure inflation returns sustainably to the 2% midpoint of its target range. Policymakers also acknowledged that inflation risks remain elevated despite lower oil prices and easing geopolitical tensions.

The prospect of further policy tightening later this year helped lift New Zealand government bond yields and supported the 'Kiwi' across the currency market.

Meanwhile, the Pound (GBP) struggled to offset the New Zealand Dollar's gains.

Sterling remained broadly supported by expectations that UK interest rates will stay relatively elevated, but the RBNZ's surprise consensus behind a rate increase proved the dominant driver of GBP/NZD price action.

Near-Term GBP/NZD Forecast: Focus Turns to the RBNZ's Next Move Following Wednesday's widely expected 25 basis point increase, investors will now focus on whether the Reserve Bank of New Zealand signals additional policy tightening in the months ahead.

While policymakers stressed that future decisions will remain data dependent, the consensus vote and accompanying statement suggest the Committee remains concerned about inflation risks and is prepared to tighten further if necessary.

If markets continue to price in another RBNZ rate increase later this year, the New Zealand Dollar could remain well supported.

For Sterling, attention will remain on incoming UK economic data and Bank of England expectations, although the near-term direction of GBP/NZD is likely to be driven primarily by changing interest rate expectations between the two central banks.