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Kiwi down on pound as UK inflation rises

NZ Newswire logoNZ Newswire 13/06/2017 Jonathan Underhill
New Zealand coin is arranged for a photograph in Wellington, New Zealand © Mark Coote New Zealand coin is arranged for a photograph in Wellington, New Zealand

The New Zealand dollar has fallen from a three-month high against the pound after stronger-than-expected UK inflation weakened the case for further Bank of England rate cuts.

The kiwi fell to 56.57 British pence as at 8am on Wednesday in Wellington from 57.12p late Tuesday. It traded at US72.20 cents from US72.24c.

In the UK, the core consumers price index rose 2.6 per cent in May from a year earlier, beating forecasts of a 2.3 per cent increase, and helping lift the pound, which has been weaker since the inconclusive election left Prime Minister Theresa May without a clear majority.

The kiwi is holding near its highest levels in almost four months against the US dollar on speculation the Fed will hike the fed funds rate a quarter point this week without giving the market enough reassurance that it will deliver a second increase this year.

"The market is positioned for a 'dovish hike' by the Fed so we think the balance of risk post the meeting is for upside to US rates and the USD," said BZN currency strategist Jason Wong.

Ahead of the Fed announcement on Thursday morning (NZT), Statistics New Zealand on Wednesday releases balance of payments data for the first quarter, which is expected to show the current account deficit unchanged at 2.7 per cent of gross domestic product.

Food prices and housing data for May are also out and Thursday's GDP data is expected to show the economy sped to a 0.7 per cent pace in the first quarter for an annual rate of 2.7 per cent.

On Wednesday morning, the kiwi rose to 95.74 Australian cents from A95.59c. It fell to 4.9062 yuan from 4.9089 yuan and traded at 79.42 yen from 79.46 yen. It declined to 64.37 euro cents from 64.52c. The trade-weighted index was at 77.68 from 77.71.

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