Home » GBP » Pound Slips versus ‘Kiwi’ as New Zealand CPI Inflation Rises, GBP/USD Up as Fitch Threatens US with Credit Rating Downgrade

Pound Slips versus ‘Kiwi’ as New Zealand CPI Inflation Rises, GBP/USD Up as Fitch Threatens US with Credit Rating Downgrade

One pound coinThe Pound to New Zealand Dollar exchange rate (GBP/NZD) declined by just under a cent last night, from 1.1900 to 1.9010, as Statistics New Zealand reported that Consumer Prices increased by 1.4% during the third quarter. The robust figure beat expectations of 1.2% and doubled the previous reading of 0.7%.

The main drivers behind the rise in CPI inflation were cigarette and tobacco prices, which jumped 12%, and petrol prices, which increased by 3.7%.

It was a topsy-turvy day for GBP/NZD yesterday: the ‘Kiwi’ Dollar rallied during the morning, pushing Sterling to a daily low of 1.8974 as traders reacted to comments from Senate Majority Leader Harry Reid suggesting that “tremendous progress” had been in the US to reach a deal to avoid a potentially catastrophic default.

However, as the day went on these risk-related gains subsided as talks broke down for the umpteenth time. It was not until the stronger-than-anticipated New Zealand CPI inflation print that the ‘Kiwi’ Dollar resumed its advance against the Pound.

It was a similar story for GBP/USD: the US Dollar strengthened during the morning by around 0.8 cents due to optimism surrounding the political impasse, but weakened during the afternoon as Democrats and Republicans once again failed to find a solution to the frustrating situation.

Sterling surged higher during the evening as credit rating agency Fitch threatened to downgrade America’s AAA rating, making specific reference to the “political brinkmanship” taking place at the moment. The other two major ratings agencies, S&P and Moody’s, currently rate US debt as AA+ and Aaa, respectively.

The downbeat assessment from Fitch, which featured concerns that “reduced financing flexibility could increase the risk of a US default”, sent GBP/USD higher by around a quarter of a cent as investors mulled over the possibility of the ‘Greenback’ losing its status as the pre-eminent reserve currency.

However, the Pound ran into significant resistance in and around the psychologically significant 1.6000 level and GBP/USD consolidated at around 1.5975.

In terms of UK data releases, the Pound was treated to a nice surprise yesterday as the British Consumer Price Index figure came in slightly stronger-than-expected at 2.7%, which bolstered the argument for an interest rate hike ahead of the Bank of England’s schedule.

Later on this morning the UK Unemployment Rate is expected to hold steady at 7.7%, but the Pound could be given a boost if Jobless Claims decline by -25,000 and Employment Change accelerates by 125,000. If the figures follow the forecasts, then GBP/USD could mount another rally above 1.6000 and GBP/NZD could challenge the 1.9100 mark.

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