Pound New Zealand Dollar (GBP/NZD) Exchange Rate Strikes Multi-Year High amid Red Hot UK Core CPI

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Hits Multi-Year High amid Hotter-Than-Expected Core CPI

Article updated 16:30, 16/8/23:

The Pound New Zealand Dollar (GBP/NZD) is smashing multi-year highs this afternoon, as markets digest the latest UK consumer price index data.

By surprising to the upside and printing at 6.9%, the UK’s core inflation reading for July has sparked elevated interest rate hike bets. Because of this reading, the Bank of England (BoE) are now widely expected to pursue up to 50bps of additional tightening before hitting the peak.

As such, Sterling is rallying against its peers, and managing to negate the New Zealand Dollar’s earlier strength.

At the time of writing, GBP/NZD is trading at around NZ$2.1418, an increase of just under 0.5% from the morning’s rates, and an over five-year high.

Original article continues below:

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Rangebound despite Sticky UK Core Inflation

The Pound New Zealand Dollar (GBP/NZD) exchange rate is rangebound this morning, despite a surprise hold in UK core inflation.

This comes as the Reserve Bank of New Zealand (RBNZ) enacted a hawkish pause, boosting the ‘Kiwi’. As such, GBP/NZD is trading at around NZ$2.1318, showing little movement from the morning’s opening rates.

Pound (GBP) Rallies on Surprise Core Inflation Hold

The Pound (GBP) is strengthening this morning, amid signs of sticky core inflation. While headline inflation fell to 6.8%, services and core inflation surprised to the upside.

With this in mind, GBP investors are making bets on additional tightening from the Bank of England (BoE). The view is growing that a 25bps hike in September is functionally nailed down.

Thomas Pugh, Economist for RSM UK, commented that:

‘Overall, inflation, especially core and services, is still too high for the MPC to tolerate, which, combined with fast wage growth, means another rate hike is September is a sure bet.

But cooling inflationary pressures means this can be another 25bps hike and that the peak in interest rates is not far off.’

The morning’s inflation print is working in conjunction with yesterday’s wage growth data, setting the stage for further tightening.

New Zealand Dollar (NZD) Rises amid Hawkish RBNZ Hold

The New Zealand Dollar (NZD) is on the march this morning, following a hawkish hold from the Reserve Bank of New Zealand (RBNZ).

The RBNZ held rates at 5.5%, stating that the cash rate would need to remain restrictive for the ‘foreseeable future’. Core inflation remains too high for comfort, despite signs of falling inflation.

However, the RBNZ left the door open to the possibility of further tightening by showing an elevated cash rate through to 2024. By raising the projections to 5.6%, investors are betting the bank has one hike left in them before a prolonged hold.

Chiefly, the RBNZ ruled out the possibility of imminent rate cuts. Their accompanying statement read:

‘The Committee agreed that the OCR needs to stay at restrictive levels for the foreseeable future to ensure annual consumer price inflation returns to the 1 to 3% target range, while supporting maximum sustainable employment.’

However, the ‘Kiwi’ may have seen some gains trimmed due to continued concerns over China’s economic recovery. As a key trading partner for New Zealand, the recent sombre news has provided a headwind for NZD.

Pound New Zealand Dollar Exchange Rate Forecast: UK Retail Sales Drop to Dent GBP?

Looking ahead for the Pound, Friday brings the release of the latest retail sales data for the UK. Over July, sales are expected to have fallen by 0.5% on a monthly basis.

If this prints accurately, Sterling may struggle for support as the vital sector continues to show signs of struggling.

For the New Zealand Dollar, Thursday night brings the release of the latest PPI data. Over Q2, PPI is forecast to have risen by 0.7%. This could strengthen the ‘Kiwi’ by pointing towards returning inflationary pressure in New Zealand.

John Mulcahey

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