Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Rises as Carney Says ‘Fog of Brexit’ Descending

Pound Australian Dollar (GBP/AUD) Rises as BoE States Interest Rates Will Increase Following Brexit

UPDATE: The Pound Australian Dollar (GBP/AUD) exchange rate rose this afternoon following the Bank of England (BoE) interest rate decision, and the pairing is currently trading at an inter-bank rate of AU$1.8255.

The BoE held interest rates at 0.75%, and despite stating that the UK faces its weakest economic growth in ten years, the pairing rose.

In his speech, Governor of the BoE, Mark Carney stated:

‘The fog of Brexit is causing short term volatility in the economic data, and more fundamentally, it is creating a series of tensions in the economy, tensions for business.’

He also emphasised that the bank’s view is that if there is a soft Brexit the economy will pick up and ‘we’ll move forwards’ and:

‘The fundamentals of the UK economy are sound. The financial sector is resilient. Corporate balance sheets are strong, and the labour market is tight.’

The bank stuck with their message that if a Brexit deal is done, interest rates will rise, buoying Sterling.

Pound Australian Dollar (GBP/AUD) Buoyed on Rumour Brexit to be Delayed by Eight Weeks

UPDATE: The Pound Australian Dollar (GBP/AUD) exchange rate remained buoyed over the morning and into the afternoon, and is currently trading at an inter-bank rate of AU$1.8179.

News emerged that sparked hope that the chance of a chaotic no-deal Brexit would be reduced, which likely helped in Sterling’s rally this morning.

The report in The Telegraph suggested that Cabinet Ministers held ‘secret discussions’ in order to plan to delay Brexit by eight weeks, changing the departure date from the 29th March to 24th May.

Today also saw the Labour party officially call for a delay with an extension to Article 50.

Despite this, the Prime Minister’s spokesman said:

‘The very clear position of the Prime Minister is that there will not be an extension of Article 50.’

Pound Sterling Australian Dollar (GBP/AUD) Rallies as Dovish RBA Shifts Position

This morning the Pound Australian Dollar (GBP/AUD) exchange rate rallied, following the speech given by Reserve Bank of Australia (RBA) Governor Philip Lowe and is trading at an inter-bank rate of AU$1.8157.

Lowe’s dovish comments caused the pairing to jump over 1.5% as he shifted the central bank’s position on its outlook for domestic interest rates, suggesting that the next move could take rates lower.

During Lowe’s speech he stated:

‘Looking forward, there are scenarios where the next move in the cash rate is up and other scenarios where it is down. Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios. Today, the probabilities appear to be more evenly balanced.’

Yesterday: Pound (GBP) Slips as UK Services Sector Suffers from ‘January Blues’

Following a worse-than-expected UK data release on Tuesday, the Pound Australian Dollar (GBP/AUD) exchange rate fell sharply.

The Markit services PMI showed that new orders had declined for the first time in two-and-a-half years during January, with business activity stagnating as the figure fell from 51.2 to 50.1.

The blame largely fell on Brexit anxieties, with Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply stating:

‘The sector had the January blues last month, as employment dropped for the first time in over six years, and new order levels fell into contraction territory.

‘[…] As optimism levels remained at some of the lowest levels since the last recession in 2009, the vice-like grip of Brexit is now taking hold of the sector, making it a very difficult start to the year and leaving little hope for improvement next month.’

Yesterday: Australian Dollar (AUD) Rises as RBA Keeps Interest Rates Steady

Tuesday saw the Reserve Bank of Australia (RBA) announce it was keeping interest rates steady at 1.5%, with the bank confident it would achieve its inflation target, prompting the Pound Australian Dollar (GBP/AUD) exchange rate to fall.

Prior to this, Australia’s retail sales figures for December were released, which showed that sales contracted further than forecast, by -0.4%, which likely caused the pairing to remain steady ahead of the RBA’s announcement.

Australia recorded its second largest trade surplus in December, although this was ascribed to the nosedive in imports, which fell by over AU$2bn, breaking another record for the largest one-month fall on record.

GBP/AUD Outlook: Will a Dovish BoE see Sterling Slump?

As there is a lack of UK economic data to be released, Brexit will likely be the main catalyst for movement of the Pound Australian Dollar (GBP/AUD) exchange rate today, as the Prime Minister is in Stormont holding Brexit talks with Northern Ireland’s five main political parties for two days before heading to Brussels.

This evening, Australian Industry Group will release January’s Performance of Construction Index, and if the figure continues to show the construction sector is contracting it may see the Pound Australian Dollar (GBP/AUD) exchange rate continue to rise.

Tomorrow the Bank of England (BoE) will reveal its latest interest rate decision, which is expected to remain steady at 0.75%.

This could see Pound sentiment increase, although if dovish comments follow it could see the ‘Aussie’ claw back some of its losses.

Millie Empson

Contact Millie Empson