Pound Australian Dollar (GBP/AUD) Exchange Rate Remains Subdued as Investors Reprice BoE Rate Hike Expectations

GBP/AUD Dented by Falling Odds of a November Rate Hike

(Updated 14:20 20/10/2021) The Pound Australian Dollar (GBP/AUD) exchange rate remains on the defensive this afternoon as investors continue to reprice their expectations for a November rate hike from the BoE.

Since the publication of this morning’s inflation figures, the odds for a rate hike this month have fallen from 59% to around 32% according to CME group’s BoE Watch tool.

However with the majority of investors still expecting a rate hike by the end of the year, analysts suggest this is more of a correction in the Pound rather than the start of a new downtrend in the currency.

At the same time, the Australian Dollar continues to find support this afternoon, courtesy of an upbeat market mood.

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Pound Australian Dollar Exchange Rate Weakens Following UK CPI Release

The Pound Australian Dollar (GBP/AUD) exchange rate is trading with modest losses so far this morning, following the publication of the UK’s consumer price index.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8396, down almost 0.3% from today’s opening rate.

Pound (GBP) Falters as Weaker Inflation Knocks BoE Rate Hike Bets

The Pound (GBP) has met some resistance this morning, after the UK’s latest CPI release reported a surprise slowing of inflation last month.

According to data published by the Office for National Statistics (ONS), UK inflation dipped from 3.2% to 3.1% in September, missing consensus forecasts it would hold steady.

The unexpected slowing of inflation exerted some pressure on the GBP/AUD exchange rate this morning as it sees some GBP investors revise their expectations for an imminent interest rate hike from the Bank of England (BoE).

The Pound has drawn some notable support in recent days from bets the BoE could start hiking rates as soon as November, particularly after Governor Andrew Bailey signalled that the bank ‘will have to act’ to curb inflation.

However, Sterling’s losses look to have been capped this morning, amidst suggestions from analysts that this dip in inflation is likely to have been a temporary blip caused by the government’s ‘Eat Out to Help Out’ scheme last year and that inflationary pressure will continue to build in the coming months.

Melanie Baker, senior economist at Royal London Asset Management, comments:

‘UK inflation remains elevated and although we may not have seen another big jump in the CPI measure of inflation in September, there is more to come. Energy bills are among factors set to help push consumer price inflation further above the Bank of England’s target in the near term.’

Australian Dollar (AUD) Firms in Risk-On Trade

At the same time, the Australian Dollar (AUD) is trending higher this morning as a bullish market mood helps to bolster the appeal of the risk-sensitive currency.

The prevailing risk-on mood appears to be partly driven by continued weakness of the US Dollar as well as hopes that most countries will be able to avoid further lockdowns amidst an accelerating vaccine rollout.

However the ‘Aussie’s gains could face some headwinds as today’s session goes on, as concerns over the potential collapse of Evergrande – China’s second largest property developer – appear to be building again ahead of a key debt deadline.

Pound Australian Dollar Forecast: Weak PMIs to Apply Additional Pressure to Sterling?

Looking ahead, the Pound Australian Dollar (GBP/AUD) exchange rate could face further headwinds in the latter half of the week, with the publication of the UK’s latest PMI figures.

These are expected to report a slowing of economic activity in the UK’s private sector this month, something which could give the BoE another pause for thought, before starting to hike interest rates.

Meanwhile, the release of Australia’s own PMI figures may be more positive, as they are expected to report stronger growth in the service sector following the easing of lockdown measures in some parts of the country.

Matthew Andrews

Contact Matthew Andrews