The pound hits a 4 year high against the Australian dollar

The pound soared against the Australian dollar yesterday after the British Chambers of Commerce (BCC) upgraded its forecast for UK economic growth in 2014, saying it will bounce back from the "deepest recession in modern times".

The BCC predict that in the second half of 2014 the UK economy will finally surpass its pre-recession peak of 2008 and cite strengthening household consumption as the main driver.

The BCC now predict that the UK's gross domestic product (GDP) is now set to grow by 2.7% in 2014.

BCC head John Longworth commented that "As household consumption slows in the medium term, we have to find ways of boosting business investment and exports, as rebalancing our economy is critical to our long-term economic future. If we make important decisions to fix the long-term structural failure in business finance, continue to deliver a major infrastructure upgrade and do more to support exports, it is possible to achieve not just a good recovery, but a truly great and sustainable economy."

The BCC also revised its forecast for when the UK's jobless rate might fall to 7%, the threshold at which the Bank of England will begin to consider raising UK interest rates from their historic low of 0.5%, a level first set in March 2009. The BCC now predict that this unemployment target will be reached in the third quarter of 2015, one quarter earlier than previously predicted.

The US dollar strengthened yesterday after a US budget deal hailed as ‘lifting the cloud of political dysfunction’ hanging over the world’s biggest economy easily cleared the lower chamber of Congress, the House of Representatives with overwhelming support, passing by margin of 332 to 94 votes. It will now go before the Senate for a final vote next week. If approved, it will be signed into law by President Obama who supports the measure.
In New Zealand, the Reserve Bank of New Zealand (RBNZ) like its counterpart in Australia kept its Official Cash Rate unchanged at 2.5 per cent but in contrast to the Reserve Bank of Australia (RBA) maintained a hawkish bias in its outlook.

RBNZ Governor Graeme Wheeler commented that he is becoming concerned about a greater share of exports going to China which now makes up around 19% of the country's exports. Wheeler stepped up his anti-inflation rhetoric and signalled that high export prices could force more aggressive interest rate hikes.

Wheeler said "One thing that's a concern is how much of our exports are now concentrated with China."China basically accounts for pretty well the largest market for all our agricultural exports except beef where it's number two. The extent and timing of such pressures will depend largely on movements in the exchange rate, changes in commodity prices, and the degree to which momentum in the housing market and construction activity spills over into broader cost and price pressures. The bank will increase the official cash rate as needed in order to keep future average inflation near the two per cent target midpoint."