The New Zealand dollar fell against the pound, reversing earlier gains, as British Prime Minister Theresa May's Conservative Party prepares to form a minority government.

The kiwi dipped against the greenback as markets await the US Federal Reserve's rate decision and statement this week.

The kiwi traded at 56.40 British pence as at 5pm in Wellington versus 56.64 pence at the start of the day and from 56.54 pence in New York on Friday.

The local dollar jumped from 55.65 pence early on Friday in Wellington after the first British exit poll.


The kiwi traded at 71.94 US cents from 72.09 cents.

"It's (the kiwi) been caught in a very narrow trading range for the last three or four days. It's quite an indecisive market right now. There are a lot of cross-currents," said Sheldon Slabbert, a trader at CMC Markets, pointing to the geopolitical backdrop and the upcoming Fed meeting.

The pound fell sharply after no single party won a clear claim to power in the UK election late last week and May is now struggling to unite her party to support her in Brexit talks - due to start June 19 - and to strike a deal with a small Northern Irish party that will enable her to stay in power.

While the pound has steadied, Westpac Bank senior strategist Imre Speizer said the pound could be in for more weakness given the uncertainty surrounding the makeup of the government and its leadership. Slabbert said, however, the main event this week will be the Federal Reserve's Open Market Committee meeting.

Given that a quarter-point increase is "pretty much locked in," attention will be on the Fed's forward guidance as markets try to gauge whether there will be any more hikes this year, he said. After this week, Slabbert doesn't expect any more hikes this year.

He said US gross domestic product data keeps being revised lower and jobs growth has also disappointed a couple of times "so I don't think the growth is there to justify more hikes this year," he said.

Otherwise, traders will be focused on New Zealand's domestic GDP data due Thursday.

The median in a Reuters poll of 11 economists is that GDP expanded 0.7 percent in the three months ended March 31 for an annual pace of 2.7 percent.


The kiwi could get a further lift against the Australian data if there is any upside surprise, particularly given tepid growth across the Tasman.

The kiwi traded at 95.58 Australian cents from 95.67 cents on Friday in New York. It traded at 4.8898 yuan from 4.8979 yuan. It slipped to 79.31 yen from 79.54 yen last week and fell to 64.16 euro cents from 64.37 cents.

The trade-weighted index was at 77.45 from 77.62.

New Zealand's two-year swap rate was unchanged at 2.19 percent while the 10-year swap rate rose 1 basis point to 3.16 percent.