Pound Australian Dollar (GBP/AUD) Exchange Rate Braces for Fresh Dovish BoE Message

Caution Ahead of Bank of England Meeting Drags on Pound Australian Dollar (GBP/AUD) Exchange Rate

Anticipation ahead of the Bank of England’s (BoE) policy announcement kept the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate under pressure this morning.

While markets do not expect to see any policy action at this stage the possibility of increased policymaker dovishness weighed on demand for Pound Sterling (GBP).

As Jasper Lawler of London Capital Group noted:

‘There is a growing consensus that the Bank of England will act again at its November meeting so if that’s the case, today will be a primer for markets. The end of the government furlough scheme in October coupled with the rising chance of everyone’s favourite cliff edge, a no deal Brexit– all point to action, most likely more QE come November.’

In the wake of Wednesday’s underwhelming UK consumer price index data investors saw little reason to favour the Pound.

Improved Unemployment Rate Shores up Australian Dollar Demand

The mood towards the Australian Dollar (AUD) improved on the back of August’s raft of Australian labour market data, meanwhile.

Although forecasts had pointed towards the unemployment rate climbing to 7.7% investors were encouraged to find that the rate had instead dipped to 6.8%.

Accompanied by a stronger participation rate this showing suggests that the Australian labour market regained some of its strength in August, shaking off the impact of the Covid-19 pandemic.

While worries over the underlying health of the Australian economy remain this was not enough to put any particular dampener on AUD exchange rates today.

However, market disappointment that the Federal Reserve did not deliver greater dovishness at its September policy meeting limited the upside potential of risk-sensitive assets.

GBP/AUD Exchange Rate Volatility Forecast on UK Retail Sales Data

Even if the BoE fails to encourage a greater sense of Pound demand the GBP/AUD exchange rate could still rally ahead of the weekend, though.

A stronger performance from August’s set of UK retail sales data may diminish lingering worries over the economic outlook, with higher levels of spending likely to help shore up the wider economy.

On other hand, if monthly sales growth fails to hold onto the strong momentum seen in July this could give investors incentive to sell out of the Pound once again.

Evidence that consumer confidence started to soften in the last month, even as lockdown conditions eased, fears of another lacklustre quarter of growth could pick up.

Lingering tensions over Brexit and the risk of a no-deal scenario may equally limit the potential for Pound gains in the near term, especially if relations between the UK and EU show signs of souring.

Risk-Off Markets Set to Keep Australian Dollar on Softer Footing

Support for the Australian Dollar may prove limited in the days ahead, though, as long as markets maintain a risk-off mentality.

Higher levels of safe-haven demand would leave AUD exchange rates exposed to selling pressure as long as anxiety over the pandemic persists.

Until markets see a reason to bet that the global economy could recover from the impact of Covid-19 sooner rather than later the Australian Dollar could struggle to find any particular traction against its rivals.

Even so, fresh signs of weakness within the US economy may still offer the antipodean currency a temporary boost on the back of a softer US Dollar (USD).

Louisa Heath

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