The New Zealand dollar jumped to a one-month high against the British pound after the Bank of England dashed the hopes of some investors who had expected it to signal a tightening in monetary policy.
The kiwi touched 51.72 British pence early this morning, and was trading at 51.62 pence at 8am in Wellington, from 51.38 pence at 5pm yesterday. The local currency was little changed at 86.62 US cents from 86.60 cents yesterday.
The British pound was the weakest major currency overnight after BoE governor Mark Carney in the bank's quarterly inflation report said Britain's recovery was still in its early stages and there is enough slack in the economy to keep interest rates on hold for a while yet. That deflated the expectations of some investors who had bet the bank would raise rates in less than a year's time.
"The Bank of England failed to boost expectations for monetary tightening," Kathy Lien, managing director of foreign exchange strategy for BK Asset Management in New York, said in a note. "Going into the release of the quarterly inflation report, most investors were positioned for a more optimistic and hawkish outlook from the central bank. They were hoping that the BoE would signal plans to raise interest rates this year but the central bank refused to deliver."
Investors are unwinding their "long" positions in the pound, where they had bet higher interest rates would strengthen the currency, Lien said.
