Pound Australian Dollar (GBP/AUD) Exchange Rate Subdued Following Surprise BoE Split

Pound Australian Dollar GBP/AUD Exchange Rate Rangebound on BoE Vote Split

The Pound to Australian Dollar (GBP/AUD) exchange rate was relegated to a narrow range this morning as markets contemplate the implications of the latest Bank of England (BoE) rate decision, with the pairing currently trading at around AU$1.8626, virtually unchanged from the morning’s opening rate.

While the central bank met predictions by opting to make no changes to the current monetary policy, two policymakers surprised markets by voting for a rate cut.

At the same time, BoE Governor Mark Carney signalled that a near-term rate cut could be on the cards if the global and British economy fail to pick up.

Pound (GBP) Stifled on Political Uncertainty and BoE Division

The Pound (GBP) was stuck nursing its wounds this morning as Thursday’s dovish BoE meeting and a general lack of clarity on the outcome of the December general election weighed on market sentiment.

Despite no change to rates, GBP investors were surprised to see two members of the Monetary Policy Committee (MPC) break rank and vote for an immediate rate cut.

Michael Saunders and Jonathan Haskel suggested that persistent Brexit uncertainties alongside signs for a cooling labour market were grounds for a more accommodating monetary policy.

The BoE also altered the language of its policy statement, hinting at the possibility of an interest rate cut before Brexit is resolved as risks to growth persist.

Bill Diviney, senior economist at ABN AMRO, commented:

‘The MPC is demonstrating a clear easing bias, and given the downside risks to growth, looks increasingly minded to ease policy early next year.’

Australian Dollar (AUD) Undermined by US-China Trade Doubts

The Australian Dollar (AUD) was off its best levels this morning, as reports of a snag in US-China trade talks exerted some pressure on the risk-sensitive currency.

The ‘Aussie’ was given a leg up on Thursday on news that the two sides are preparing to roll back some tariffs as part of the ‘phase 1’ trade deal.

However subsequent headlines have cast some doubts, with reports that some members of the White House are reluctant to ease tariffs so soon.

This saw the Australian Dollar wobble this morning amidst concerns the deal might be derailed before it can be signed.

GBP/AUD Forecast: UK Politics and GDP to Drive Sterling

Looking ahead, the Pound to Australian Dollar (GBP/AUD) exchange rate looks poised to rally at the start of next week’s session with the publication of the UK’s latest GDP figures.

Economist forecasts are for a strong growth rebound in the third quarter, with a jump from -0.2% to 0.3%. This would mean the UK avoided slipping into a recession in 2019 and will likely lend some support to Sterling.

However any gains could prove limited as the UK election campaign grinds on, with political uncertainty likely to cap any upside in GBP exchange rates.

Meanwhile, the Australian Dollar could come under fire next week following the publication of Australia’s latest employment report.

Domestic unemployment is predicted to have risen again last month, putting more pressure on the Reserve Bank of Australia (RBA) to continue cutting interest rates.

Matthew Andrews

Contact Matthew Andrews