Pound Australian Dollar (GBP/AUD) Exchange Rate Hits Fresh One-Month High, Wavers in a Narrow Range

Pound Australian Dollar (GBP/AUD) Exchange Rate Hovers at One-Month High

(Updated 16:00, 6/1/22) The Pound Australian Dollar (GBP/AUD) exchange rate hit a fresh one-month high of AU$1.89054 this afternoon, and continues to waver around that level.

The strength in GBP/AUD comes despite worries that surging Omicron cases could overwhelm the NHS due to high levels of staff absences. At least 24 NHS trusts have declared critical incidents, the highest alert level.

In addition, the final UK services PMI for December confirmed a sharp slowdown in growth. The emergence of Omicron hammered the UK’s vital services sector last month as people cancelled bookings and limited contact with others. As a result, service sector growth hit a ten-month low.

One explanation for the Pound’s (GBP) resilience against the Australian Dollar (AUD) is the current risk-off mood. The hawkish Federal Open Market Committee’s (FOMC) meeting minutes last night shook investors, while the UK’s poor PMI may have further soured sentiment. Additionally, the US services PMI also showed a sharp slowdown. This seems to be weighing on markets, thereby denting the risk-sensitive ‘Aussie’.

AUD is also struggling amid Covid-testing chaos in Australia. As Omicron cases soar, many Australians are struggling to find – or afford – coronavirus tests.

Original article continues below:

Pound Australian Dollar (GBP/AUD) Exchange Rate Edges Down as NHS Worries Continue 

The Pound Australian Dollar (GBP/AUD) exchange rate is retreating from a one-month high hit earlier this morning as surging Covid cases continue to hammer the NHS. 

At the time of writing, GBP/AUD is heading downwards after reaching a high of AU$1.88846. 

Australian Dollar (AUD) Settles after Risk-Off Losses Overnight 

The Australian Dollar (AUD) tumbled in overnight trade after the hawkish meeting minutes from the Federal Open Market Committee (FOMC) rattled investors. 

Last month, the Federal Reserve decided to speed up its tapering process. Since then, markets experienced a Santa rally as Omicron fears eased and investors remained hopeful for the new year ahead. 

However, the minutes from the Fed’s meeting last month, released yesterday evening, reminded markets that less favourable trading conditions are on their way. 

A key passage from the minutes reads: 

‘[I]t may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated. Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate. Some participants judged that a less accommodative future stance of policy would likely be warranted’. 

These words signal the Fed’s hawkish intent as the US economy recovers from the pandemic and inflation runs hot. Markets, which were extending their festive good cheer into the first week of 2022, were suddenly jolted into a bearish market mood. As a result, the risk-sensitive ‘Aussie’ fell sharply, hitting a one-month low against the Pound (GBP). 

The risk-off mood has persisted into today’s session so far. However, it looks like AUD may have bottomed out and could regain some losses. 

Pound (GBP) Dented by NHS Fears 

Meanwhile, the Pound may be unable to capitalise on the Australian Dollar’s weakness today as pressure continues to mount on the UK’s embattled NHS. 

This morning, the Transport Secretary, Grant Shapps, confirmed that at least 24 of 137 NHS trusts have declared critical incidents. A critical incident alert level signals that a trust is under enough pressure to jeopardise priority services. 

While Omicron is proving less severe than the Delta variant, with fewer patients needing ventilators or intensive care, NHS services are facing severe staff shortages due to rising Covid cases and the need to isolate. As a result, GBP is under pressure. 

GBP/AUD Exchange Rate Forecast: NHS Pressure to Weigh on the Pound? 

As the day goes on, risk appetite could be a defining factor in the GBP/AUD exchange rate. If the market mood takes a more upbeat turn, the ‘Aussie’ could regain some ground lost overnight. 

Meanwhile, the UK’s domestic Covid situation is likely to influence Sterling. More worrying headlines about the strain on the NHS could further weigh on the Pound. 

Samuel Birnie

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