GBP/AUD Mounts Recovery Following Vlieghe Comments
After tumbling at the start of the European session earlier today, the Pound to Australian Dollar (GBP/AUD) exchange rate mounted a recovery this afternoon in the wake of comments from the Bank of England’s Gertjan Vlieghe.
Sterling sentiment rallied on Friday afternoon as the BoE policy maker suggested in a speech in Birmingham that households should brace for borrowing costs to rise over the coming years.
In his speech Vlieghe indicated that the pace of rate hikes could accelerate to up to two increases a year for the next few years, should wage growth pick up as expected.
GBP/AUD Fluctuates as Trump Imposes Heavy Tariffs on China
The Pound to Australian Dollar (GBP/AUD) exchange rate fluctuated wildly during the Asian session today as markets reacted to Trump’s latest tariff proposals.
At the time of writing GBP/AUD is down 0.3% from its opening levels, with the pairing having erased nearly all of its gains from Thursday.
Australian Dollar (AUD) Rocked by Global Trade Concerns
The Australian Dollar faced some wild swings in movement against the Pound in overnight trade on Thursday as Trump’s administration outlined its plans to levy new trade tariffs against China.
The move has sent shockwaves through both currency and stock markets as traders fear it could spark a trade war between the world’s two largest economies.
Commodity-correlated currencies such as the Australian Dollar were particularly hard hit by concerns that a derailing of global growth could see a marked fall in demand for exports.
Elias Haddad, Senior Currency Strategist at the Commonwealth Bank said:
‘The tariffs on Chinese imports outlined by President Donald Trump overnight appears to be the trigger behind [AUD’s] moves.’
The President instructed the US Trade Representative (USTR) to levy 25% tariffs on at least $50 billion in Chinese imports per year. The proposed product list subject to the tariffs will include aerospace, information and communications technology, and machinery.
Further rocking the Australian Dollar exchange rate was the report that Australia’s exemption from Trump’s steel tariff is only temporary, prompting further concerns that exports could be hit.
Pound (GBP) Parts with Gains Following BoE Rate Decision
Meanwhile the Pound relinquished much of Thursday night’s gains this morning as markets continue to mull over the Bank of England’s (BoE) latest rate decision.
As expected, the BoE voted to leave its monetary policy on hold on Thursday, while also hinting that it may move to raise interest rates in May.
However while markets welcomed the somewhat hawkish outlook from the bank, it failed to bolster GBP, with the currency forced to retreat instead as analysts suggested that a May rate hike had already been largely priced in.
Ken Odeluga, market analyst at City Index, said:
‘A May rate rise remains all but certain, but the market had largely priced it in before Thursday.’
This, combined with renewed Brexit jitters amidst this week’s EU summit saw the Pound lose almost all of Thursday’s gains.
GBP/AUD Exchange Rate Forecast: Slowing UK Growth to be Confirmed?
Looking ahead to next week’s session the main source of movement in the GBP/AUD exchange rate is likely to be the UK’s final GDP reading for the end of last year.
Economists forecast that the final estimate will confirm UK economic growth slowed to 0.4% in the fourth quarter.
Meanwhile it is likely to be a relatively quiet week in terms of Australian data, leaving the Australian Dollar vulnerable to further trade concerns and any additional slides in commodity prices.