Dollar jumps vs pound as BoE prints more money

Friday 7th August 2009

The New Zealand dollar jumped against the pound after the Bank of England expanded its quantitative easing programme and revived demand for the greenback as stocks on Wall Street edged lower.

The British central bank held interest rates at a record low 0.5% as expected, but surprised the market by boosting its asset purchasing facility 50 billion pounds to 175 billion pounds, saying the banking sector needs to repair its balance sheet and will restrict the availability of credit.

The downbeat comments from the BoE encouraged investors to eschew higher-yielding, or riskier, assets in favour of the relative safety of the world’s reserve currency.

The Dollar Index, a measure of the greenback versus a basket of six trading partners, climbed 0.3% to 77.95. The kiwi outperformed other so-called risk currencies and held above 67 US cents.

The British central bank’s “downbeat outlook for UK growth paved the way for US dollar strength,” said Danica Hampton, currency strategist at Bank of New Zealand.

“The kiwi held up relatively well, only nudging slightly lower.”

The New Zealand dollar was little changed at 67.05 US cents from 67.04 cents yesterday, and jumped to 39.95 pence from 39.44 pence. It rose to 62.21 on the trade-weighted index, or TWI, a measure of the currency versus a basket of trading partners, from 62.05 yesterday, and increased to 63.95 yen from 63.87 yen.

It advanced to 79.78 Australian cents from 79.69 cents yesterday, and gained to 46.71 euro cents from 46.54 cents.

Hampton said the currency may trade between 66.60 US cents and 67.60 cents today. She expects it will push above 68 cents in the coming weeks as investors remain optimistic that the global economy is well on the road to recovery.

The Reserve Bank of Australia will announce its monetary policy statement today, and currency traders will be looking to see if Governor Glenn Stevens hints at when the central bank will start hiking interest rates.

Australia managed to avoid a recession, and its unemployment rate fell below New Zealand’s yesterday when it held steady at 5.8% compared to a nine-year high 6% across the Tasman.

Non-farm payrolls out today in the US “will have to be a real shocker” to dampen global optimism, Hampton said. America shed around 320,000 jobs in July, according to a Reuters survey, but “it would take something like twice that” to knock the wind out of investors’ sentiment, she said.

Businesswire.co.nz

Comments from our readers

No comments yet