* Sterling slumps after inflation comes in below forecast
* Data also points to softer outlook for New Zealand dollar
* Eyes on U.S. inflation, Jackson Hole
* Euro heads towards recent 9-month lows vs dollar
By Patrick Graham
WARSAW, Aug 19 (Reuters) - Sterling and the New Zealand dollar were the main losers on major currency markets on Tuesday, hit respectively by a bigger than expected fall in inflation and lower government forecasts for growth.
The dollar, stuck for the past two weeks in a tight range, benefited from a sharp narrowing in the euro zone’s current account surplus in June. The euro dipped, but did not drop past support at a nine-month low of $1.3333 struck earlier this month.
European trade in the major currency pairs was dominated by UK inflation numbers, which showed price growth fell to 1.6 percent year-on-year in July, undermining the case for a rise in official interest rates this year.
The pound slid as much as 0.5 percent against both the dollar and the euro in response. . It hit a four-month low of $1.6634 against the dollar, and slipped towards a two-month trough against the euro.
“With CPI now comfortably below its 2 percent target, the Bank has no need to use interest rates to tame inflation,” said Tony Wilson, head of currency strategy at FEXCO.
“Tomorrow’s (Bank of England) minutes will add more detail, but for now the markets’ assumption that rate rises are once again in the long grass has sent sterling down across the board.”
The market will look to details on Wednesday of the Bank of England’s most recent discussion on rates, which some expect may show the first dissenting vote on its policy committee for an immediate rise.
The New Zealand dollar, down more than 4 percent from record highs hit in July, had been the major mover in Asian time, also suffering from a dip in producer prices which reflected broader concerns over growth and demand for the country’s dairy exports.
“It was sold off hard after the PREFU (fiscal update),” said Sue Trinh, a strategist with RBC Capital Markets in Hong Kong. “Specifically, the market was upset by downgrades to GDP growth forecasts.”
Revised growth estimates, however, still showed New Zealand outstripping most of its developed world peers, with the government trimming its forecast for growth in the year to next March to 3.8 percent from 4 percent earlier.
That underlines a relatively robust picture that has driven a steady rise in interest rates at a time when those in Europe and the United States are nailed to all-time lows. The kiwi’s problem is that many in markets are convinced the best news on the economy is all priced in. It was 0.44 percent lower at $0.8440 in early London deals.
The U.S. dollar had jumped higher on Monday after a handful of more positive signs on the housing market there, which ran counter to the relaxed stance on monetary policy laid out by Federal Reserve speakers so far in August.
Market attention this week is focused on the annual Jackson Hole meeting of bankers starting on Thursday, but a range of data before then could reinforce the growing optimism about the economy which gripped markets in July.
A rally for the dollar then spurred hopes it was finally ready for a more sustained push higher, but it has been stuck since hitting a nine-month peak against the euro at the start of this month.
Hans Redeker, head of global currency strategy at Morgan Stanley in London, said he expected Federal Reserve chief Janet Yellen and this week’s numbers to pull forward market expectations for how fast U.S. interest rates will rise. That would open the door to more gains for the greenback.
“All in all, we should see this week that the short-term dollar correction has run its course,” he said. “I would position myself in a pro-dollar way.”
U.S. inflation numbers are due later on Tuesday. (Additional reporting by Anirban Nag; Editing by Susan Fenton)