The Pound Australian Dollar (GBP/AUD) exchange rate has firmed at the start of this week as a risk-off mood sweeps markets due to global concerns over the impact of the Omicron coronavirus variant.
Fears over the Omicron variant caused GBP/AUD to trade in a wide range last week, while the Bank of England’s (BoE) surprise decision to raise interest rates supported Sterling.
What’s Been Happening: GBP/AUD Fluctuates on Omicron and BoE
The Pound (GBP) fluctuated through last week as concerns over the Omicron variant and record high Covid-19 cases in the UK threaten to lead to renewed restrictions that would disrupt UK economic activity.
However, the BoE’s decision to raise interest rates at the end of the week to 0.25% from 0.1% shocked markets and supported the Pound.
The monetary policy committee voted by 8-1, citing soaring inflation – at 5.1% in November – and a strong UK job market as reason to raise rates.
Meanwhile, the risk-sensitive Australian Dollar (AUD) experienced volatility last week amid a risk-off mood driven by fears over the Omicron variant.
Australian unemployment data and comments from Reserve Bank of Australia (RBA) Governor Phillip Lowe provided a fleeting AUD gains midweek. Unemployment fell more-than-expected to 4.6% in November, down from 5.2%, and Lowe suggested the RBA could tighten monetary policy sooner than expected.
Three Things to Watch Out for This Week
- Covid-19 Developments
GBP/AUD may be set for more volatility as Omicron quickly becomes the dominant coronavirus variant around the world, potentially leading to tighter restrictions in many countries, including the UK, before Christmas.
- RBA Meeting Minutes
Following comments from RBA governor Lowe last week that suggested the central bank could end its bond-buying programme in February instead of May if economic progress is better-than-expected, further insight in the meeting minutes may bolster the ‘Aussie’.
- Finalised UK GDP Growth
The final UK GDP reading for the third quarter may dent GBP exchange rates on Thursday if there are any downward revisions on the 1.3% growth in the previous estimate.
Pound Australian Dollar Exchange Rate Forecast
Omicron and record high Covid-19 cases in the UK look set to drive volatility in the Pound Australian Dollar exchange rate in the run up to Christmas.
The threat of tighter UK restrictions coming into force this week continue to linger after UK Health Secretary Sajid Javid failed to rule out more Covid measures.