Pound Australian Dollar (GBP/AUD) Exchange Rate Sinks Slightly Following BoE Speeches

GBP/AUD Exchange Rate Lowers Marginally as BoE Policymakers Seek to Reassure

(Updated 16:30, 05/11/2021) The Pound (GBP) is just slightly down against the Australian Dollar (AUD) this afternoon following speeches from the Bank of England (BoE)’s Dave Ramsden, Silvana Tenreyro and Huw Pill. The three policymakers cast opposing votes: Ramsden to hike and Tenreyro and Pill to leave the cash rate unchanged.

Huw Pill, a sometime-hawk and the central bank’s chief economist, told markets on Friday that the Monetary Policy Committee (MPC) still sees ‘some need’ for a rate hike, despite the majority having voted against action yesterday:

‘I think across the committee, there is a recognition that, at least on the basis of today’s information, there is some need for action with the Bank Rate.’

Pill stressed that the differences within the MPC about the need to act were narrow.

In the view of Dave Ramsden, a recent rise in inflation above what had been a relatively stable historical average is reason for concern. Ramsden said he had voted to address that concern.

Silvana Tenreyro, however, sticks to her former position – arguing that the BoE should take a cautious approach to raising rates, as the economy remains below its pre-crisis size.

Tenreyro added that the health of the labour market is hard to interpret and it would be advisable to wait for further data to reveal the impact of the end of Britain’s furlough programme.

Original article continues below:

Pound Australian Dollar Exchange Rate Levels after BoE-Inspired Downturn

The Pound Australian Dollar (GBP/AUD) exchange rate is trading level this morning following yesterday’s dovish policy decision from the Bank of England (BoE). Sterling plummeted against its peers yesterday as investors were disappointed in their hopes of an early rate hike.

At the time of writing, GBP/AUD is trading at A$1.8242, virtually unchanged from today’s opening levels.

Pound (GBP) Sinks in Aftermath of Dovish BoE Decision

The Pound (GBP) remains subdued against the majority of its peers this morning as yesterday’s monetary policy decision continues to weigh upon GBP sentiment.

The Bank of England decided to keep interest rates on hold at 0.1%, in addition to leaving its quantitative easing programme unchanged – surprising markets which had priced in an rise of 15bps on Thursday.

The central bank’s Governor, Andrew Bailey, is facing criticism today over accusations that he mislead markets with hawkish comments. Various reporters have warned that the bank’s poor communication strategy risks the BoE’s credibility.

Based upon the central bank’s signalling, cheap mortgage deals were taken off the markets – but Bailey rejects responsibility for markets’ assumptions.

The Governor admitted that policymakers have to occasionally make ‘quite direct comments about what we think will happen’: but insists that at no point did he or any other Monetary Policy Committee (MPC) member say rates would rise at the November meeting specifically.

Looking ahead, the Bank of England’s new forecasts predict that inflation will peak at 5% early next year – the highest it’s been in a decade.

Projections show that wages after tax will not keep pace with inflation, with real post-tax labour incomes expected to fall by 1.25% in 2022, and by another 0.75% in 2023. The news is a blow to households already feeling the squeeze, exerting further downside pressure on GBP.

Australian Dollar (AUD) Tumbles on Risk Aversion

The Australian Dollar (AUD) is also facing headwinds this morning as a risk-off market mood prevails. Yesterday’s Ai group services index for October missed expectations, exerting additional pressure upon the ‘Aussie’.

The Australian Industry Group performance of services index rose just 1.9 points in October to 47.6, remaining below the key 50 point mark that separates contraction from expansion in the sector.

The reason for the indicator’s third contraction in a row, according to Ai Group chief executive Innes Willox, was ‘lingering activity restrictions, barriers to interstate movement and the same disruptions to the supply of inputs that are being felt in other parts of the economy.’

Willox added:

‘Service sector businesses will be hoping that the further unwinding of COVID restrictions and a burst of sales as the holiday season approaches, will lift the sector and see it enter 2022 from a position of strength.’

GBP/AUD Exchange Rate Forecast: BoE Speeches to Inspire Movement?

Looking ahead, speeches from BoE policymakers Dave Ramsden and Silvana Tenreyro this afternoon may influence the Pound Australian Dollar exchange rate. A lack of further data means AUD in particular is likely to trade upon external factors and risk sentiment.

Olivia Evershed

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