Dollar drops to five-week low vs. sterling after upbeat UK employment report

The New Zealand dollar dropped to a five-week low against the British pound after UK unemployment fell more than expected and wage growth accelerated, turning investor attention to the possibility of higher interest rates.

The kiwi touched a low of 51.09 British pence overnight, and was trading at 51.35 pence at 8am in Wellington from 51.34 pence at 5pm yesterday. The local currency rose to 86.27 US cents from 85.87 cents yesterday after Federal Reserve Chair Janet Yellen said US policymakers have a continuing commitment to support the US economic recovery.

The pound strengthened after Britain's unemployment rate dropped to a five-year low 6.9 percent in the three months through February from 7.2 percent in the quarter through January and below the 7 percent threshold that Bank of England governor Mark Carney set as an initial guide for considering a boost in interest rates. The report showed wage growth accelerated to 1.7 percent, matching the inflation rate in February and above the March rate, raising speculation about when the Bank of England may hike rates.

"UK wage growth rose above the rate of inflation for the first time in five years sending cable (sterling) soaring," Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management in New York, said in a note. "The beat in labour data numbers indicates that the UK economy continues to enjoy the best growth in the G7 universe and clearly sends the BoE to the front of line in the race to hike rates amongst the advanced industrialised nations of G7."

Today, the local focus will be on the ANZ-Roy Morgan Consumer Confidence report for April, scheduled for release at 1pm.

In Australia, traders will be eyeing the first quarter NAB Business Confidence report at 1:30pm New Zealand time.

The New Zealand dollar advanced to 92.01 Australian cents from 91.62 cents yesterday, increased to 62.44 euro cents from 62.14 cents and gained to 88.24 yen from 87.73 yen. The trade-weighted index gained to 80.10 from 79.75 yesterday.

(BusinessDesk)