Pound Australian Dollar (GBP/AUD) Exchange Rate Recoups Losses on Hawkish BoE

Pound Australian Dollar (GBP/AUD) Exchange Rate Bounces off Ten-Day Low

(Updated 15:20, 23/9/21) The Pound Australian Dollar (GBP/AUD) exchange rate regained some ground today, bouncing off a ten-day low ahead of the Bank of England’s (BoE) policy decision.

Sterling then lost some of these gains following the bank’s announcement but at the time of writing remains close to today’s opening levels.

The BoE struck a fairly hawkish tone following its policy decision, saying that recent developments ‘appear to have strengthened’ the case for a modest tightening of monetary policy. While the bank left monetary policy unchanged for now, two of the nine members of the Monetary Policy Committee voted to taper bond purchases.

In response to the latest decision, City traders have brought forward their forecast for a BoE rate hike to March 2022, which has boosted the Pound.

However, the upside seems offset by the bank’s downbeat outlook. The BoE expects the energy crisis to push inflation above 4% this winter, with the squeeze on living costs persisting into the middle of next year.

The bank also highlighted significant uncertainty in the labour market, with the government’s furlough scheme set to end this month.

These concerns may be limiting the Pound’s upside this afternoon, as it hovers around the AU$1.8816 mark.

Original article continues below:

Pound Australian Dollar (GBP/AUD) Exchange Rate Down as UK Concerns Pile Up 

The Pound Australian Dollar (GBP/AUD) exchange rate is trading near a ten-day low today, as the UK’s economic woes weigh on Sterling sentiment in the run-up to the Bank of England (BoE) policy meeting at midday. 

GBP/AUD is also dented by strength in the Australian Dollar (AUD) after Australia’s latest PMI reports printed above expectations. 

Australian Dollar (AUD) Firms as PMIs Beat Forecasts 

The Australian Dollar started today’s session strong after Australia’s flash PMIs for this month beat forecasts. 

The country’s manufacturing PMI unexpectedly rose from 52 to a three-month high of 57.3, beating predictions of a drop to 51. The increase in production came as firms became better adapted to working within Covid-related restrictions. 

Increased demand also led companies to hire more staff, and confidence among manufacturers hit its highest level since June. 

Meanwhile, the services PMI also beat predictions, climbing from 42 to 44.9. While the report still points to a contraction in service-sector activity, the above-expected results seem to have boosted AUD. 

In addition, service providers also expanded their workforces amid increased optimism for the year ahead. 

The PMIs come as Australia continues to tackle outbreaks of Covid-19, which have caused multiple regional lockdowns in recent months. News that the country plans to open international borders by Christmas boosted AUD against GBP recently, raising hopes that Australia may be emerging from economically damaging restrictions. 

Pound (GBP) Subdued ahead of BoE Decision 

The Pound (GBP), meanwhile, is muted today ahead of the BoE’s latest policy decision. 

Despite hawkish commentary from BoE officials in recent weeks, the UK’s precarious economic situation may cause the central bank to adopt a more cautious stance. 

Earlier this week the UK government agreed a deal with CF Industries to restart carbon dioxide production amid concerns that a shortage of the gas would lead to major disruption in the UK’s food supply. The deal will initially cover three weeks of production and is expected to cost the taxpayer tens of millions of Pounds. 

Additionally, yesterday two more energy firms folded, bringing the total number to seven. Around 1.5 million customers will now be transferred to new suppliers, likely on higher tariffs

The burgeoning energy crisis is only expected to get worse, and it adds to multiple other challenges facing the UK’s economic recovery. Supply chain disruption, labour shortages, the National Insurance hike, soaring inflation, the end of the furlough scheme and the cuts to Universal Credit all threaten to stifle business, increase unemployment and squeeze household budgets. 

These concerns will be weighing on BoE policymakers’ minds as they convene at noon today, and expectations of a bleak outlook from the central bank are weighing on GBP sentiment.

Adding to GBP’s headwinds, the UK’s PMIs for September both printed below expectations. Manufacturing dropped from 60.3 to 56.3, while services fell from 55 to 54.6. These disappointing results seem to have put further downward pressure on the Pound.

GBP/AUD Exchange Rate Forecast: BoE Outlook in Focus 

GBP/AUD may remain muted as we near the BoE’s policy decision. With the bank likely to leave monetary policy untouched, investors will be looking to the BoE’s forward guidance. 

Amid the many economic concerns hanging over the UK, it’s possible that the bank’s forward guidance may reiterate the dangers to the UK’s economic recovery. If so, we could see GBP/AUD fall further.