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Pound New Zealand Dollar (GBP/NZD) Exchange Rate Forecast: Weak UK Inflation to Dampen Case for BoE Rate Hike in 2018?

Bank of England

GBP/NZD Exchange Rate Tumbles as UK Inflation Falls Short of Forecasts

The Pound New Zealand Dollar (GBP/NZD) exchange rate was met by a sharp sell-off on Wednesday as the UK’s latest inflation report missed market expectations.

At the time of writing the GBP/NZD exchange rate has slumped by around 0.5%, with the pairing having slumped by around half a cent from Tuesday’s best levels.

Pound (GBP) Exchange Rate Slumps, Will Lacklustre Inflation Prevent a BoE Rate Hike this Year?

The Pound (GBP) exchange rate is trending lower again today following the publication of some lacklustre inflation figures from the UK.

According to data published by the Office for National Statistics (ONS), UK inflation held at a one-year low of 2.4% in May, failing to climb to 2.5% as the majority of economists forecasted.

The ONS reported that inflation was only prevented from falling lower thanks to a sharp rise in fuel costs last month, with petrol prices rocketing up 3.8% to their highest levels since 2014.

This suggests underlying price pressures in the UK has become increasingly weak and that inflation may be undermined in the coming months as fuel prices pull back.

The greatest concern for GBP investors however is whether the recent run of more modest inflation could hamper any attempts for the Bank of England (BoE) to raise interest rates in the second half of 2018.

New Zealand Dollar (NZD) Exchange Rate to Struggle in the Face of Accelerating Fed Rate Hikes?

Meanwhile looking to the New Zealand Dollar (NZD), there is speculation the currency could struggle in the future as the US Federal Reserve gears up to accelerate its monetary tightening.

This comes as Fed Chair Jerome Powell floats the idea of holding a press conference after every meeting by the Federal Open Market Committee (FOMC).

These press conferences are currently scheduled to occur at every other meeting, and historically have been the only time when the Fed announces changes to interest rates, something which can have a dramatic impact on the value of the New Zealand Dollar.

However the possibility of a press conference after every meeting now suggests that every meeting is now ‘live’ for a rate hike, allowing for the Fed to accelerate its monetary tightening.

GBP/NZD Exchange Rate Forecast: Could More Aggressive Fed Undermine the ‘Kiwi’?

Looking ahead, the GBP/NZD exchange rate may rebound by the end of Wednesday’s session, should an expected rate hike from the US Federal Reserve dampen risk appetite and demand for the New Zealand Dollar (NZD).

However any gains in the Pound (GBP) exchange rate may prove to be short lived as the release of the UK’s latest retail sales figures later in the week is expected to show a significant slowdown in sales growth last month.