Update 2: BoE Leaves Policy Outlook Unchanged, GBP/AUD Forecast to Climb if UK Moves to Brexit Trade Talks?
The central bank’s outlook for monetary policy was unchanged, disappointing those investors who had hoped for a hint that UK interest rates might just rise in 2018.
GBP/AUD slid by a further 0.3% overnight but could bounce back before the weekend if the EU summit sees the UK get the green light to progress to Brexit negotiations.
Update 1: Fed Delivers US Rate Hike but Australian Dollar Exchange Rates Gain on Local Jobs Data
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate fell overnight despite the Federal Reserve increasing interest rates for a third time as Australia’s latest employment figures came in more strongly than forecast..
While a US rate hike would usually weaken higher-risk currencies like the Australian Dollar, this adjustment had been expected for months.
The Fed also disappointed by holding to its previous projection for three rate hikes in 2018.
As some investors had hoped this figure would be increased, the US Dollar broadly weakened, leaving the AUD exchange rates on firmer ground.
Meanwhile, the Australian economy added considerably more positions than forecast in November. The nation had been expected to add 19.0k jobs, so the 61.6k increase came as a welcome surprise.
Business Insider Australia said of the result; ‘To put that figure into perspective, it’s the second-fastest annual increase on record, only surpassed by the 409,200 increase recorded in the year to August 2005.
Despite the surge in employment in November, the unemployment rate held steady at 5.4% courtesy of a massive lift in labour force participation which jumped 0.3 percentage points to 65.5%, leaving it at the highest level since September 2011.’
GBP/AUD Exchange Rate Recovers from Worst Levels, Sterling Finds Limited Support in Wage Growth Data
The Pound to Australian Dollar (GBP/AUD) exchange rate started to recover from a weekly low on Wednesday despite some strong Australian data and Britain’s mixed job market figures.
Demand for Pound Sterling improved slightly on Wednesday – but not by much.
Following Tuesday’s higher than expected UK Consumer Price Index (CPI) results, markets were slightly relieved when UK wage growth came in better than expected in October.
Britain’s growth in average earnings including bonuses improved to 2.5% as expected, while the previous figure was revised higher from 2.2% to 2.3%.
The excluding bonuses figure, on the other hand, beat expectations by unexpectedly rising from 2.2% to 2.3%.
Overall though, the figure had little impact on the Pound outlook as wage growth still trailed well behind the high rate of inflation.
On top of this, Britain’s October employment figures disappointed investors. The unemployment rate remained at 4.3% rather than improving to 4.2% as forecast, and the number of those employed dropped for the second month in a row.
Things don’t look great for November either, as the November jobless claims change figure came in at a much higher than expected 5.9k, indicating that less people are able to find work.
Australian Dollar Exchange Rates Weaken Ahead of Fed Decision
The Australian Dollar (AUD) was unable to capitalise on Wednesday’s Australian consumer confidence data, due to market anticipation for the Federal Reserve’s upcoming policy decision.
During Wednesday’s Asian session, Westpac published its December consumer confidence results, which saw solid gains.
The confidence change figure improved from -1.7% to 3.6%, while the index jumped from 99.7 to 103.3.
Despite the solid data, however, the Australian Dollar’s gains were brief and the currency dropped during the European session.
This is because of the Federal Reserve’s approaching policy decision, at which the US bank could signal its intentions for monetary policy in 2018.
With US monetary policy in focus, demand for high risk currencies is tepid.
GBP/AUD Exchange Rate Forecast: Central Bank Decisions Set to Spark Volatility
The Federal Reserve’s interest rate decision could spark Australian Dollar (AUD) volatility overnight.
If the Fed is hawkish on its 2018 monetary policy outlook, the Pound to Australian Dollar exchange rate could advance as investors would have less appetite for risk-correlated currencies.
Thursday will be a highly influential session for GBP AUD too with Australia set to release its jobs market data and the Bank of England (BoE) due to deliver it’s latest interest rate decision.
Australian employment is expected to have risen in November, a result that could lend support to the Australian Dollar.
As for the Bank of England’s policy decision, the bank is expected to leave monetary policy frozen and maintain a cautious stance on Britain’s economy.
If the BoE is notably more hawkish, or dovish, than expected, the Pound’s trajectory is likely to influence GBP AUD exchange rate movement.