The Pound Australian Dollar (GBP AUD) exchange rate rocketed to a new four-month high thanks to a stronger than expected GDP report from the UK on Wednesday.
Data released by the Office for National Statistics (ONS) revealed that the UK economy grew 0.4% over the third quarter, beating expectations that growth would have held at 0.3%.
The gains in the GBP AUD exchange rate were further compounded by the release of some lacklustre inflation figures from Australia.
Figures released by the Australian Bureau of Statistics (ABS) showed that inflation slipped from 1.9% to 1.8% in the third quarter, disappointing investors who were expecting it to have picked up to 2%.
The data caused ‘Aussie’ sentiment to plummet as it dampened any hopes that the Reserve Bank of Australia (RBA) may raise rates in the near future.
Australian Dollar Pressured by Persistent Weakness in Iron Ore Prices
The Australia Dollar has begun the session on the back foot again as the currency was undermined by yet another fall in commodity prices at the end of last week.
Iron ore markets opened on Monday dangerously close to falling below the $60 a tonne barrier after spot prices fell another 2.3% to $60.08 a tonne on Friday extending its weekly losses to 3.8% for the week.
The fall in iron ore prices comes as China looks to deepen steel production cuts in certain regions over the winter period, likely lowering demand for the key Australian export over the coming months.
GBP Drifting Higher Ahead of BoE Policy Meeting
The Pound is trending higher at the start of this week’s session as investors brace for a possibly rate hike from the Bank of England (BoE) in the tail half of the week.
Hopes of a rate hike this week is also helping the Pound to shrug off a report from the Institute of Fiscal Studies (IFS) this morning that suggests that the UK public deficit may not be falling at the speed the government hoped.
Analysts at the IFS suggest that weaker than expected productivity in the UK will lead to a £20bn black hole in public finances over the next five years, dampening hopes that Chancellor Philip Hammond may have been able to use the extra wiggle room to boost growth.
GBP AUD Forecast: BoE Rate Hike to be One Off?
Looking ahead, investors are likely to focus nearly all their attention this week on Thursday’s rate decision from the BoE as investors speculate that the bank may implement its first rate hike in over a decade.
Despite some weak UK data in recent weeks appearing to slightly dent the chances of a hike, the market odds of a rate hike currently sit at around 80% as analysts forecast that policymakers will coincide its rate hike with November’s inflation report.
The question will then be whether the hike will be a one-off or whether this will be the start of a new cycle of monetary tightening for the bank.
Meanwhile, the Australian Dollar may trend lower overnight on Wednesday if the nation’s trade balance slips as some economists predict.