(Updated 16:10 04/11/2021)
The GBP/AUD exchange rate has fallen over the course of the session following the Bank of England’s decision to leave interest rates and quantitative easing unchanged.
The decision came amid market speculation that the BoE would raise interest rates to compensate for increased inflationary pressures.
As of time of writing the rate sits at around $1.6823 which is down 0.75% from this morning’s figures.
GBP/AUD Exchange Rate Boosted by Fall in Australian Dollar
The Pound Australian Dollar (GBP/AUD) exchange rate saw a slight rise overnight as pessimistic data returns for AUD caused the currency to fall against the Pound.
The Pound remains steady this morning ahead of the Bank of England’s (BoE) interest rate decision which may prompt significant movement in Sterling.
As of time of writing the GBP/AUD exchange rate is at around $1.8376.
Pound (GBP) Reserved as Market Awaits BoE Interest Rate Decision
The Pound (GBP) is subdued today as the markets await the BoE interest rate decision today, with investors holding off on significant bets until then. The currency fell slightly overnight as the Federal Reserve’s decision to keep interest rates unchanged and taper asset purchasing provided a slight boost to the US Dollar (USD).
Analysis is mixed ahead of the BoE’s interest rate decision. Several policymakers including Governor Andrew Bailey have spoken for a more hawkish monetary policy, although many of the board’s members would still prefer a more dovish approach.
Analysts have been quick to point out that the BoE’s decision comes just after an ending of the UK’s furlough scheme, a reduction in universal credit payments, and continuing supply bottlenecks affecting business confidence. Danny Blanchflower, a member of the Monetary Policy Committee (MPC) from 2006 to 2009, warned that raising rates too early could seriously hinder the UK’s economic growth post-COVID:
‘If you do this, you’ve lost the plot. How can you possibly do it when you’ve just cut universal credit, you’re talking about doing austerity, and we’ve ended furlough. What are you doing?’
Australian Dollar (AUD) Falls as Economy Underperforms
The Australian Dollar saw mixed fortunes overnight amid more risk-averse trading and ongoing easing of the country’s COVID-19 restrictions.
The ‘Aussie’ held steady overnight but has dropped going into the morning session as European markets reacted to the country’s trade balance and retail sales figures.
Trade Balance for September came in slightly below forecast at $12.243B with exports falling unexpectedly by -6%. The country’s exports have been hindered by the falling price of iron ore, with import numbers boosted by the continuing rise in the price of crude oil.
Australia’s retail sales saw a modest boost in line with forecasts month-on-month for September of 1.3%, but fell 4.4% for the third quarter. It’s thought that retail sales will see a boost in the coming months as Australia moves out of strict lockdown measures which is likely to provide a boost to AUD in the coming weeks.
GBP/AUD Exchange Rate Forecast: Will UK Interest Rates Rise?
Investors will be focusing on the Bank of England’s interest rate decision today which is likely to cause movement in the Pound. Rising inflationary pressure caused by supply chain bottlenecks, raw material shortages, rising business costs and soaring energy prices has supported the case for a rate rise, although the BoE has previously considered these factors to be transitionary.
If no rate hike is announced, the Pound may fall as investors betting on changing rates sell. An announced rate hike could see the Pound strengthen, with the BoE’s forward guidance a possible driving force of additional volatility.
The Australian Dollar may see fresh movement overnight as the Group Services Index is forecast to show a return to growth in October in the service sector with a reading of 52, up from 45.7 in September. Whilst this may prompt downward movement in the ‘Aussie’, the reopening of the country’s economy will give investors hope that this trend is unlikely to continue.
A statement on monetary policy from the Reserve Bank of Australia (RBA) tomorrow is expected to reiterate the central bank’s stance, although Governor Philip Lowe has been under pressure to reconsider as inflation continues to rise.