GBP vs NZD: what’s driving the pound and what to watch next

The pound has climbed toward the top of its 2025 range against the New Zealand dollar, trading around 2.30–2.32 per GBP and briefly reaching 2.33 earlier this week. The move reflects two developments:

• UK inflation came in higher than expected, and

• The Reserve Bank of New Zealand cut its cash rate.

What’s driving the move

• UK inflation surprise
  UK CPI rose to 3.8 percent year on year in July, up from 3.6 percent and above forecasts. This makes it harder for the Bank of England to continue cutting rates quickly after its early August reduction to 4.00 percent.

• New Zealand rate cuts
  The RBNZ lowered the Official Cash Rate to 3.00 percent and signalled it could cut further if inflation continues to moderate and growth stays weak. New Zealand inflation is already back inside its 1–3 percent target band, at 2.7 percent, which gives it room to ease.

• Debt and fiscal backdrop
  The UK still faces a heavy debt interest bill, which is a structural concern for the medium term. In the short run, though, this week’s swing was about the contrasting inflation and policy signals.

This year GBP/NZD has traded between 2.17 and 2.33. With the latest move, the rate is right at the top of that range. What do we expect to happen next?:

• If UK inflation keeps surprising on the upside and the Bank of England holds off on deeper cuts, sterling could remain firm and strengthen even further

• If New Zealand growth or dairy prices pick up more than expected, the kiwi could strengthen.

• Conversely, if UK growth disappoints or fiscal concerns rise, the pound could weaken.

The exchange rate is ultimately driven by expectations. Markets price in a path for inflation, growth, and central bank policy. When the data comes in hotter, cooler, stronger, or weaker than expected, the currency adjusts. That’s why FX moves often surprise and are notoriously hard to predict.

For clients transferring large sums of money to New Zealand we almost always recommend to dollar cost average over 10 weeks rather than trying to react to newsflow. This approach takes the risk and the emotions right down.