GBP AUD Forecast: Pound Australian Dollar Exchange Rate Recovers Ground After Less Hawkish BoE Meeting

Pound Australian Dollar Exchange Rate Downside Limited as Markets Reassess BoE Outlook

As markets reassess the implications of the Bank of England’s (BoE) May policy decision the Pound to Australian Dollar (GBP/AUD) exchange rate has found some measure of support.

After the sharp losses seen on Thursday the downside potential of the Pound (GBP) has been a little limited, offering GBP exchange rates scope to recover ground.

Even so, confidence in the Australian Dollar (AUD) remained elevated ahead of the weekend thanks to the general recovery in market risk appetite.

After the Bank of England (BoE) opted to leave interest rates on hold the Pound to Australian Dollar (GBP/AUD) exchange rate has come under renewed pressure.

As policymakers stepped back from tightening monetary policy once again, responding to the weaker recent UK data, the mood towards the Pound (GBP) soured significantly.

While the hold on interest rates was largely expected, this still weighed heavily on GBP exchange rates, especially as the quarterly Inflation Report saw the Bank’s growth forecasts downgraded.

With the BoE now anticipating growth of just 1.4% in 2018, as opposed to the 1.8% forecast in February, confidence in the outlook of the UK economy diminished.

As signs point towards the economy having lost momentum in the first quarter investors see little incentive to favour the Pound at this juncture.

Weaker Australian Lending Fails to Shore up Pound Australian Dollar (GBP/AUD) Exchange Rate

Although the latest raft of Australian home loans and investment lending figures proved weaker than forecast this failed to offer the Pound to Australian Dollar (GBP/AUD) exchange rate any support.

While borrowing contracted sharply across the board in March the mood towards the Australian Dollar (AUD) remained positive on Friday.

This was largely thanks to the softer nature of Thursday’s US consumer price index data, which pointed towards weaker inflationary pressure within the world’s largest economy.

Even though the odds of an imminent Federal Reserve interest rate hike remain elevated AUD exchange rates were able to claw back some ground ahead of the weekend.

With market risk appetite recovering in the wake of the US withdrawal from the Iran nuclear deal the downside potential of the Australian Dollar was limited.

Dovish RBA Minutes Forecast to Offer GBP/AUD Exchange Rate Support

The Pound to Australian Dollar (GBP/AUD) exchange rate could find a rallying point next week, however, with the release of the Reserve Bank of Australia’s (RBA) meeting minutes.

If the minutes indicate that policymakers were in a more dovish frame of mind at the May policy meeting this could weigh heavily on AUD exchange rates.

While markets do not expect to see any monetary policy action from the RBA in the coming months any signs of a dovish bias are still likely to dent the appeal of the Australian Dollar.

Jitters are also forecast for AUD exchange rates ahead of Thursday’s Australian labour market data, even though no change is expected for the headline unemployment rate.

Any signs that the domestic labour market is tightening could offer the Australian Dollar a solid boost, though.

Pound Australian Dollar (GBP/AUD) Exchange Rate Vulnerable Ahead of UK Wage Data

While UK data will be a little thin on the ground next week the Pound to Australian Dollar (GBP/AUD) exchange rate could benefit from the latest unemployment and wage growth figures.

Particular attention will fall on the average weekly earnings data, with a modest acceleration in wages forecast for March.

As wage growth has been a key consideration for the BoE a stronger showing here could encourage bets that the central bank will still raise interest rates before the end of the year.

On the other hand, if the tightening of the labour market fails to translate into higher wages this could leave the Pound to Australian Dollar (GBP/AUD) exchange rate on a weaker footing.

Hannah Wilson

Contact Hannah Wilson