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 per cent from 2.8 per cent 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.
