Kiwi hits 25-year high against sterling

The New Zealand dollar hit a post-float high of 46.74p against the British pound yesterday as political and economic concerns rocked sterling.

The kiwi eclipsed the record of 46.43p set in October last year. The New Zealand dollar floated in 1985.

The pound fell to a 10-month low against the US dollar after weekend polls strongly indicated that the next British general election would result in a hung Parliament.

This weighed heavily on markets concerned that a new government will lack the necessary mandate to implement a tough new budget and a long-term plan to tame the deficit.

Sterling last night was trading a shade below the psychological barrier of US$1.50 at US$1.49.

The slump comes after months of concern about the state of Britain's public finances from the credit rating agencies and international bodies such as the IMF and the Bank of England.

All have called for a "credible" plan to reduce state borrowing, which will be close to 13 per cent of GDP; the more extreme have talked of a Greek-style crisis and described the gilts market as sitting "on a bed of nitroglycerine".

Mark O'Sullivan, director of dealing at leading foreign exchange firm Currencies Direct, said: "Although sterling rallied on the back of the weekend's speculation over a possible bailout of Greece, hitting a high of US$1.52 in Asia, reality has now set in. A bailout of Greece would leave the UK extremely vulnerable with its huge level of debt, a fact which our politicians seem determined to ignore. The markets need convincing that UK debt can be reduced."

Adding to the political uncertainties dogging sterling, the latest economic data compounded anxieties.

The Bank of England warned that mortgage approvals were down by 17 per cent in January compared with December and at their lowest level for eight months.

That boosted fears that the UK's housing market recovery may now have stalled, with Nationwide warning last week that prices have begun falling.

The New Zealand dollar continued to lose ground against its Australian counterpart as the difference between the two countries' official cash rates recorded its widest gap in nearly 20 years after Australia raised its benchmark interest rate.

The kiwi was worth A77.54c at 5pm yesterday, down from A77.80c at the same time on Monday.

Against the US dollar the kiwi was worth US69.68c at 5pm, down from US69.86c on Monday.

- INDEPENDENT, NZPA