Pound Australian Dollar (GBP/AUD) Exchange Rate Climbs on BoE Rate Hike
(Updated 16:00, 16/12/21) The Pound Australian Dollar (GBP/AUD) exchange rate recouped its losses today after the Bank of England (BoE) surprised markets by raising its Bank Rate.
The bank’s Monetary Policy Committee (MPC) voted 8-1 in favour of increasing interest rates from 0.1% to 0.25%, citing yesterday’s CPI report for November which showed that inflation hit a ten-year high of 5.1%. In addition, the latest employment data indicates that the UK labour market continues its robust recovery, despite the end of furlough.
The move came as a shock considering dovish comments from BoE policymakers in recent weeks. Catherine Mann, who voted for a hike, said just two weeks ago that it was ‘premature to even talk about [the] timing’ of a rate rise. In addition, industry leaders and economists are very concerned about how Omicron may dent the UK’s economic recovery.
With soaring inflation on the one hand and a stuttering recovery on the other, the bank had a tough choice. Unsurprisingly, opinions on the move are mixed. Here are the views of two former BoE rate-setters, Andrew Sentance and Danny Blanchflower:
While the Pound (GBP) managed to regain this morning’s losses following the decision, it remains below yesterday’s level. The very real threat Omicron poses to the UK’s economic recovery seems to be dampening the mood. GBP/AUD is currently trading at around AU$1.854, up about 0.24% from the start of the European session.
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Pound Australian Dollar (GBP/AUD) Exchange Rate Falls on Omicron Worries and Aussie Jobs Data
The Pound Australian Dollar (GBP/AUD) exchange rate is losing ground today amid news that rising Omicron cases are hitting the UK’s hospitality sector hard. Meanwhile, the Australian Dollar (AUD) is firming thanks to some strong jobs data overnight.
At the time of writing, GBP/AUD is trading at around AU$1.845, down 0.24% from today’s opening level.
Pound (GBP) Down as UK Services Sector Hit by Covid
The Pound (GBP) is falling today ahead of the Bank of England (BoE) interest rate decision, with investors increasingly concerned about the UK’s Omicron situation.
Yesterday, the UK’s number of Covid cases by date reported hit a record high of 78,610, a sharp increase from Tuesday’s 59,610. The previous record was 68,053 on 8 January, after Christmas mingling saw a spike in cases and the UK entered another long lockdown.
Last night Boris Johnson held a press conference alongside Chris Whitty, England’s chief medical officer. Johnson urged people to be cautious over the festive period but said he was not putting restrictions on social events. However, Whitty issued a starker warning:
‘I’m afraid we have to be realistic that records will be broken a lot over the next few weeks as the rates continue to go up…
‘Don’t mix with people you don’t have to. [You] don’t need a medical degree to realise that is a sensible thing to do with an incredibly infectious virus.’
He added:
‘[T]here will be an increasing number of Omicron patients going into the NHS, going into hospital, going into intensive care. That will begin to become apparent, in my view, fairly soon after Christmas.’
Following the warning, many restaurants and pubs are seeing Christmas bookings cancelled and customer numbers fall. Many in the hospitality, leisure and events industry are pleading for more government support.
Baroness Ruby McGregor-Smith, President of the British Chambers of Commerce, said:
‘Until now the Treasury has stepped up at every stage of this crisis to help offset restrictions that limited business’ ability to trade fully, which is what makes its complete absence at this crucial moment all the more baffling.
‘Businesses have heard nothing from the Treasury since this new round of Covid interventions arrived over a week ago. Not even a rationale has been provided for why it believes no new support is required. They deserve better.’
The warnings from industry are reflected in December’s flash PMI report, with the service-sector reading dropping from 58.5 to 53.2, well below forecasts of 57.6. The emergence of Omicron in late November has caused consumers to be more cautious, thereby denting spending on services.
Australian Dollar (AUD) Firms on Strong Jobs Data
Meanwhile, the Australian Dollar (AUD) is on the rise today following some strong Australian jobs data overnight.
In November, the Australian unemployment rate fell from 5.2% to 4.6% month-on-month, far better than the expected 0.2 percentage point drop. Employment jumped by 366,100, versus the 205,000 rise forecast.
The strength in the labour market adds to the case for an earlier-than-expected tightening of monetary policy from the Reserve Bank of Australia (RBA).
Marcel Thieliant, a senior economist at Capital Economics, commented:
‘It’s fair to say that the labour market has all but recovered from the lockdowns… The remarkable recovery suggests the RBA will end its asset purchases altogether in February.’
Despite RBA Governor Philip Lowe repeatedly pushing back on rate hike expectations, markets have priced in an interest rate rise by June. As a result, the ‘Aussie’ is gaining ground today.
GBP/AUD Exchange Rate Forecast: Pound to Fall Further Post BoE?
At noon today the Bank of England will meet to set interest rates. The worsening Omicron situation means a rate hike is unlikely, despite UK inflation hitting a ten-year high last month. If the BoE does leave rates unchanged, Sterling may slip further.
Meanwhile, risk sentiment could start to weigh on the ‘Aussie’ and limit its gains. If other countries around the world face similar challenges to the UK, market sentiment may sour, which could dampen the appeal of the risk-sensitive AUD.