The Pound to New Zealand Dollar exchange rate (GBP/NZD) appreciated by around 2.5 cents yesterday as investors reacted to strong UK and soft New Zealand inflation numbers.
Sterling rallied by around 1.5 cents yesterday morning thanks to a surprise British consumer price index print of 1.9%, up from 1.5% previously. Analysts, who had priced in a much smaller rise to 1.6%, were caught off-guard by the sturdy figure, which was seen to increase the probability of an interest rate hike from the Bank of England before the end of the year.
Softer-than-anticipated British data last week – manufacturing production, industrial production, construction output, BRC retail sales and Halifax house prices – had caused some investors, under the impression that the BoE would wait until 2015 to hike rates, to start taking profit on GBP positions. However, yesterday’s impressive CPI result reaffirmed the prospect of a rate hike in 2014.
Large increases in clothing, transport and food prices contributed to the 1.9% inflation print.
Central Bank Governors Mark Carney (BoE) and Janet Yellen (Fed) also gave speeches yesterday. Carney reiterated that the rapidly overheating housing market is the greatest threat to UK financial stability, but stopped short of pledging to tackle the situation with monetary policy. And Yellen retained her cautious approach to steering the US economy through this period of low growth. She said that interest rates would not be raised until there were significant improvements in the labour market and consumer price index.
Neither Carney’s nor Yellen’s comments had a massive impact on GBP/NZD because they did not illuminate anything that markets were not already aware of.
During the evening it was reported that New Zealand consumer prices rose from 1.5% to 1.6% in the second quarter. In contrast to the outperforming British figures, the Antipodean inflation rate weakened the domestic currency because it was significantly lower than the median forecast of 1.8%. On a quarterly basis price pressures increased by 0.3%, compared to expectations of 0.4%.
The disappointing New Zealand CPI report is not likely to deter the Reserve Bank of New Zealand from maintaining its rate hike cycle, however, the soft figure did put a little bit of doubt in traders’ minds and this helped drive the ‘Kiwi’ lower versus Sterling.
Overall the Pound to New Zealand Dollar exchange rate (GBP/NZD) grew by 2.5 cents to 1.9550 yesterday, marking the biggest intraday gain since January.
Later today data is expected to show that the headline UK unemployment rate fell from 6.6% to a fresh 5-year low of 6.5% in the three months leading up to May. There could be further Sterling gains if the UK labour market figures match, or beat, economists’ forecasts.
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