BoE Leaves Rates on Hold in August, Sterling Remains on the Defensive

GBP/AUD Exchange Rate Subdued Following BoE Rate Decision

Updated: The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate remains on the back foot this afternoon after the Bank of England voted to leave interest rates on hold again in August.

In his press conference following the decision, BoE Governor Mark Carney was quizzed about the bank’s preparations for Brexit, particularly in regards to the possibility of no-deal.

This saw Carney warn that a disorderly Brexit is likely to weaken Sterling and the UK economy, and hinted the BoE would likely step in with a rate cut in such a scenario.

GBP/AUD Exchange Rate Dips Ahead of BoE Decision

The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is on the back foot this morning as market brace for what is expected to be a dovish rate decision by the Bank of England (BoE).

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.7674, down roughly 0.4% from this morning’s opening rate.

How Might the BoE’s Rate Decision Impact the GBP/AUD Exchange Rate?

Looking forward to today’s session, we expect to see some volatility in the Pound Australian Dollar (GBP/AUD) exchange rate later this afternoon as the Bank of England concludes its August policy meeting.

Economists are not forecasting any policy changes from the BoE this month, putting the focus instead on the bank’s latest growth and inflation forecasts.

This is likely to see the BoE put pressure on Sterling as it revises its growth forecast for 2019 lower, after the economy appeared to slow sharply in the second quarter.

On top of this there will also be the bank’s forward guidance, which analysts suggest is likely to be significantly more dovish in light of the rising risks of a no-deal Brexit.

Kallum Pickering, Senior Economist at Berenberg Bank, suggests:

‘We expect the BoE to emphasise how it may act in the downside scenario of a hard Brexit at the end of October. With pro-Brexit Boris Johnson becoming UK Prime Minister, this has become a much more pertinent issue in recent weeks.

‘Expect the BoE to signal that ’more likely than not’ it would ease policy to help buffer the shock of a no deal Brexit outcome.’

The BoE will deliver its latest policy decision at 11:00 GMT today.

Pound (GBP) Undermined by Gloomy UK Manufacturing PMI.

In the meantime, the Pound (GBP) is struggling to find support this morning following the publication of the UK’s latest manufacturing PMI.

According to data published by IHS Markit, the UK’s factory PMI held at 48 in July, beating expectations it would slide to 47.7.

However this still left the index clearly within contraction territory, with a growth in the UK’s factory sector stuck at six-and-a-half year low.

The index also revealed another worrying drop in both manufacturing output and new orders last month, as the unwinding of Brexit stockpiles continued to choke domestic demand.

Australian Dollar (AUD) Buoyed by Upbeat Chinese Data

Meanwhile, the Australian Dollar (AUD) roared higher during the Asian session today as AUD investors cheered the publication of some stronger-than-expected Chinese manufacturing data.

China’s Caixin Manufacturing PMI was reported to have accelerated from 49.4 to 49.9 in July, beating expectations of a more modest rise to 49.6.

Whilst this left the index within contraction territory, it suggests that slowdown in China’s factory sector is likely to prove short lived, something which bolstered the appeal of the ‘Aussie’ on the hopes it will lift demand for Australian exports.

Matthew Andrews

Contact Matthew Andrews