Pound Australian Dollar (GBP/AUD) Firm Following Bailey Comments
After edging higher through yesterday’s European session, the Pound Australian Dollar (GBP/AUD) exchange rate is trading in a narrow range so far today.
Following comments from the Bank of England Governor Andrew Bailey, the GBP/AUD exchange rate is ticking slightly higher to trade at AU$1.8319 at the time of writing.
Pound (GBP) Steady as BoE’s Bailey Reiterates Stance
The Pound (GBP) is ticking higher on Tuesday after recovering some of its recent losses at the start of the week.
After last week’s sharp fall, the Pound is attracting some support from investors, while weakness in its major rivals is also helping GP gains.
Sterling’s modest recovery comes after comments from Bank of England (BoE) Governor Andrew Bailey in which he largely reiterated his stance on inflation and raising interest rates.
The central bank’s governor commented on needing to act to raise rates if evidence of higher inflation expectations pushes up wages.
With the risk of more bottlenecks in the economy, in supply chains and in labour shortages, expectations for higher inflation will likely increase.
Bailey commented:
“What we’re concerned about … is once you start to get an increase in inflation of this sort we want to stop it becoming generalised in the economy.
“And that’s why we would, and will, have to act on interest rates if we see that evidence becoming clear.”
He also said again that inflation is temporary as lockdowns ease and that hiking interest rates ‘doesn’t pass through’ to the rest of the economy quickly and needs detailed consideration.
Australian Dollar (AUD) Struggles as Commodity Prices Soften
The Australian Dollar (AUD) has been mixed at the start of this week’s session as softening commodity prices limit the Australian Dollar.
Aluminium prices are down 20% from recent highs, iron ore prices are lower than during the early part of the coronavirus pandemic last year, and China’s coal output looks set to push coal prices down.
Upbeat Chinese trade data and news that Pfizer’s antiviral Covid-19 treatment pill reduces deaths and hospitalisations by 89% in clinical trials fuelled a risk-on mood that supported the risk-sensitive ‘Aussie’.
Further support came from the NAB business confidence index for October released last night, which unexpectedly jumped to its highest level in seven months with a reading of 21, up from 10 in September.
Business morale improved sharply as lockdown restrictions eased in New South Wales and Victoria, while vaccination rates also continued to rise.
The chief economist of NAB commented:
“The large improvement in forward orders provides further evidence of the strong rebound in economic activity that is underway.
“Businesses can see that conditions are improving and that momentum should continue over coming months.
“These results support our expectation of a strong rebound in activity as lockdowns are lifted in the final months of 2021.”
Pound Australian Dollar Forecast: High-Impact Data to Drive GBP/AUD
High-impact data looks set to drive movement in the GBP/AUD exchange rate in the coming days.
Westpac consumer confidence data for November released tonight could weigh on the ‘Aussie’ as forecasts point to sentiment remaining near the year’s low levels.
Expectations for Australian unemployment to have risen to 4.8% in October, from 4.6% in September, will likely stoke volatility in the Australian Dollar.
Meanwhile, ahead of UK GDP data later in the week, Brexit-related tensions could weigh on GBP exchange rates as UK-EU talks on the Northern Ireland protocol continue.
Growing speculation that the UK will activate Article 16 and suspend parts of the protocol is causing concerns of looming trade disruption between the UK and EU.