Pound to Australian Dollar Exchange Rate Forecast: GBP/AUD Losses to Extend Unless BoE Eases Market Jitters

Update: Pound to Australian Dollar Exchange Rate Sheds Weekly Losses on Falling Bank of England Bets

Wednesday morning’s UK Consumer Price Index (CPI) results continued to drag the Pound to Australian Dollar (GBP/AUD) exchange rate lower throughout the day.

Investors remained concerned that the Bank of England (BoE) would feel less pressured to hike UK interest rates in May or later in the year.

At the time of writing, GBP/AUD had fallen over half a cent and was trending near the interbank level of 1.82.

Analysts generally expect the BoE will still hike UK rates in May, but markets are highly anticipating any reassuring signals from bank officials before buying the Pound (GBP) again.

Pound to Australian Dollar Exchange Rate Plunges as UK Inflation Slows More than Expected Raising Fears BoE will not Hike Rates in May

After performing firmly for most of the week so far, the Pound to Australian Dollar (GBP/AUD) exchange rate plunged on Tuesday as investors digested surprisingly weak UK inflation figures.

GBP/AUD opened this week at the interbank level of 1.83 and touched on a half-month-high of 1.84 on Monday, before tumbling to around 1.82 on Tuesday.

Investors became concerned following March’s UK Consumer Price Index (CPI) report that the Bank of England (BoE) could be put off hiking UK interest rates in May. This caused the Pound (GBP) to plunge.

UK inflation was forecast to have slipped slightly from 0.4% to 0.3% month-on-month but remain at 2.7% year-on-year.

However, the report fell short of forecasts in both prints. Inflation slowed to just 0.1% month-on-month and the yearly figure unexpectedly slipped from 2.7% to 2.5%.

Pound (GBP) Exchange Rates Plunge on Rising Bank of England (BoE) Uncertainty

As UK inflation slowed more than expected, investors became concerned that UK inflation was still only strong because of the Pound’s (GBP) change in value since the 2016 Brexit vote.

If UK inflation is falling after the Pound has recovered from its Brexit hit, this could mean the economy may not be strong enough to support tighter monetary policy.

As a result, Bank of England (BoE) interest rate hike bets fell on Tuesday, which dragged heavily on the Pound.

Analysts became increasingly split following the report on whether a BoE interest rate hike in May was still likely.

Suren Thiru from the British Chambers of Commerce (BCC) warned against the BoE raising interest rates:

‘We’d caution against a sustained increase in interest rates as it could dampen confidence and weaken overall economic activity,

‘More must also be done to lift confidence and growth, including addressing the escalating burden of up-front business costs.’

However, other analysts, including Alan Clarke from Scotiabank, argued that the BoE could ‘look through this’.

Either way, Pound investors are now highly anticipating comments on the data from BoE officials.

Australian Dollar (AUD) Exchange Rates Benefit from Higher Risk-Sentiment

So far this week the Australian Dollar (AUD) has been able to more easily push GBP/AUD lower due to higher demand for risky trade-correlated currencies.

Headlines concerning trade disagreements between the US and China, as well as geopolitical uncertainties in the Middle East, have taken a backseat. The threat of uncertainty is perceived as having faded somewhat.

However, Australian news has slightly weighed on ‘Aussie’ appeal this week.

The Reserve Bank of Australia’s (RBA) meeting minutes were cautious and did little to make investors excited about the economic outlook.

Meanwhile, Westpac’s March leading index report worsened to -0.2% according to Wednesday’s report.

Pound to Australian Dollar (GBP/AUD) Forecast: Investors Await Bank of England (BoE) Comments

The Pound to Australian Dollar (GBP/AUD) exchange rate plunged on Tuesday as investors became uncertain about whether or not the Bank of England (BoE) would still hike UK interest rates in May, in the wake of slowing inflation.

With upcoming UK data unlikely to ease concerns about the slowing inflation rate, investors are instead highly anticipating signals from the Bank of England.

If the BoE no longer plans to hike UK interest rates in May, it will likely attempt to signal as much to markets over the coming weeks. Speeches from BoE officials are likely to be closely watched by Pound traders as a result.

If BoE officials instead indicate that a May rate hike is still on the cards, Sterling could see stronger demand again and GBP/AUD could rise.

However, the GBP/AUD outlook is likely lower overall after today, as the possibility of UK inflation continuing to slow will likely weigh on bets of further tightening from the bank later in the year.

As for the Australian Dollar, developments regarding US and China trade relations are likely to influence the ‘Aussie’.

Thursday’s Australian jobs market results from March also have the potential to influence the Pound to Australian Dollar (GBP/AUD) exchange rate’s late-week movement.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard