Dollar falls to week low against £ after Bank of England ups growth forecasts

The New Zealand dollar dropped to a week low against the British pound after the Bank of England raised its growth forecasts, increasing speculation interest rates may rise next year.

The kiwi fell as low as 50.08 British pence and was trading at 50.11 pence at 8am in Wellington from 50.73 pence at 5pm yesterday. The local currency slipped to 83.15 US cents from 83.46 cents yesterday ahead of a report on US retail sales for January.

The Bank of England may be the second major central bank after New Zealand to raise interest rates this cycle as the UK economy improves. The BoE yesterday raised its forecast for 2014 growth to 3.4 percent from 2.8 percent and said the UK economy is gaining momentum, boosting demand for sterling.

"The BoE has said that it may start to hike its main cash rate as early as 2015 as the economic recovery starts to ramp up," said Peter Cavanaugh, client adviser at Bancorp Treasury Services. "A 2015 interest rate hike would probably put the BoE as the second developed economy to raise official interest rates, following the RBNZ and, naturally, the GBP has rallied strongly."

In New Zealand today, traders will be eyeing the latest BNZ-BusinessNZ PMI report at 10am which is expected to show continued strong expansion in January. Data for house sales in January is expected to be released about midday by the Real Estate Institute of New Zealand.

The New Zealand dollar was little changed at 92.03 Australian cents from 92.11 cents yesterday ahead of Australian labour market data scheduled for release at 1:30pm New Zealand time today. Economists expect Australia's unemployment rate to have ticked higher to 5.9 percent from 5.8 percent.

Reserve Bank of Australia assistant governor Guy Debelle is scheduled to speak at a financial market event this afternoon while Federal Reserve chair Janet Yellen is set to deliver the Fed's report to the Senate tonight.

The kiwi slipped to 61.13 euro cents from 61.23 cents yesterday after weak European industrial production data and comments from European Central Bank executive board member Benoit Coeure that the bank was very seriously considering a negative deposit rate.

The local currency weakened to 85.25 yen from 85.56 yen yesterday. The trade-weighted index dropped to 78.24 from 78.48 yesterday.

(BusinessDesk)

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AUD 0.9028 -0.0052 -0.57%
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