BoE Official Saunders Upbeat on Unemployment and Wages, GBP/AUD Exchange Rate Weakens on Cautious Interest Rate Outlook
An upbeat outlook on the UK economy from noted Bank of England (BoE) hawk Michael Saunders has failed to lift the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate today.
Speaking at a financial industry event in London, Saunders claimed that the rate of joblessness may fall at a faster pace than the Bank of England, as well as the general consensus amongst economists, expects over the coming year.
‘Balancing out the positives and negatives, the near term outlook for the economy is not great, but nor is it terrible,’ Saunders said. ‘And even modest growth may well exceed the economy’s diminished rate of potential growth. To put it differently, economic growth of around 1½-2% YoY may (as over the last year) be enough to tighten the labour market significantly further.’
However, despite his more optimistic forecast for the UK economy, Saunders remained in line other members of the Monetary Policy Committee (MPC) in stressing interest rates would remain low for some time to come; a gloomy admission from one of the more confident members of the BoE that has weighed on Pound Sterling today.
Safe Haven Demand Prevents Australian Dollar Capitalising on Pound Sterling Weakness
Market preference for the US Dollar today has weighed on appetite for the Australian Dollar, preventing the GBP/AUD exchange rate from recording notable losses.
With USD somewhat weak against a number of its peers (it is down to a post-referendum low versus GBP), markets have been incentivised to abandon the risky AUD in order to take up US Dollar positions.
Demand for the safe US Dollar is also being fuelled by the latest Global Risks Report released by the World Economic Forum (WEF), which has forecast that environmental, economic and diplomatic risks are all set to increase over the coming months.
WEF Founder and Executive Chairman Klaus Schwab said:
‘A widening economic recovery presents us with an opportunity that we cannot afford to squander, to tackle the fractures that we have allowed to weaken the world’s institutions, societies and environment. We must take seriously the risk of a global systems breakdown.’
This has proven a bigger catalyst for Australian Dollar movement than recent positive domestic data.
January’s Westpac consumer confidence survey showed another rise in sentiment, with the index climbing 1.8% from 103.3 to 105.1.
Home loans data for November substantially beat forecasts with a rise of 2.1% month-on-month, beating forecasts of stagnation after October’s -0.6% decline.
Respite Forecast for Pound Sterling to Australian Dollar Exchange Rate if US Fed Speeches Pressure AUD Lower
While there is no more UK or Australian data due for release today, developments in the US could have a strong impact upon the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate.
As well as the mid-afternoon industrial production, manufacturing production and capacity utilisation figures for December, followed later by the NAHB housing market index for January, speeches from Federal Reserve officials Charles Evans and Loretta Mester could cause notable volatility.
Should the two policymakers make comments that help firm or weaken bets of an interest rate hike in March, the Australian Dollar is forecast to weaken, which would enable the GBP/AUD exchange rate to break firmly into positive territory.
Considering Evans will be discussing ‘Economy and Monetary Policy’ and Mester ‘Monetary Policy Communications’, it seems likely there will be some shift in the current odds of 72.6% that the Federal Reserve will hike interest rates towards the end of the first quarter.