Pound Australian Dollar (GBP/AUD) Exchange Rate Unable to Sustain Gains Ahead of FOMC Decision

GBP/AUD Exchange Rate Climbs, Levels on Political Headwinds

(Updated 17:00, 26/01/2022) The Pound Australian Dollar (GBP/AUD) exchange rate rose through the middle of today’s session as GBP recouped some of its losses on central bank optimism. A slight improvement in market mood lent support to the Pound in several exchange rates.

Gains were shortlived, however, as investors are reluctant to place bullish bets ahead of Sue Gray’s ‘Partygate’ report. Media representatives are hopeful that the findings may yet be released this evening, although now that the House of Commons has adjourned, the Prime Minister will be unable to comment until tomorrow.

No 10 has always said it wants the report’s publication to be followed by a statement from Johnson soon afterwards. In advance of this, the PM is trying to get Tory MPs on side – during today’s Prime Minister’s Questions (PMQs), he claimed the government is cutting tax while accusing opposition leader Keir Starmer of being ‘a lawyer not a leader’.

Conservative MPs seem to have responded well to his speech, although the Guardian warned that ‘MPs, particularly Conservative ones, are very capable of cheering a leader to the rafters while privately disparaging them and doing their best to remove them.’

Original article continues below:

Pound Australian Dollar Exchange Rate Dips on Hopeful Market Sentiment

The Pound Australian Dollar (GBP/AUD) exchange rate is subdued this morning ahead of the Federal Reserve’s interest rate decision. USD investors anticipate indications of a March rate hike, buoying overall market sentiment and favouring the risk-sensitive Australian Dollar (AUD).

At the time of writing, GBP/AUD is trading at A$1.8835, 0.2% from today’s opening levels.

Australian Dollar (AUD) Enjoys Risk-On Tailwinds

The Australian Dollar (AUD) is trending up against its peers today as an upbeat market mood supports risk-on currencies. Signs of stability in the global equity markets also contribute towards bullish trading, along with hopes for an earlier interest rate hike from Australia’s own central bank.

Tuesday’s stronger-than-expected inflation report fuelled speculation that the Reserve Bank of Australia (RBA) may scrap its bond-buying programme at next week’s meeting, and open the door to interest rate rises later this year.

Headline CPI rose 1.3% in Q4, pushing the yearly rate to 3.5%: adding to this, core CPI surpassed the midpoint of the RBA’s 2-3% target for the first time since June 2014.

According to Gareth Aird, the CBA’s head of Australian economics:

‘It is our expectation that CPI will be the smoking gun that sees the RBA end the bond-buying program at the February board meeting. It should also lay the groundwork for a rate hike in late 2022.’

If such speculation persists, the ‘Aussie’ may continue to enjoy tailwinds over the prospect of easing inflationary pressures.

Pound (GBP) Tumbles as Markets Await the Sue Gray Report

The Pound (GBP) is falling against the majority of its rivals this morning as a lack of significant UK data leaves the currency to trade on risk sentiment and political dynamics. The British public are braced for shockwaves as civil servant Sue Gray’s report into the ‘Partygate’ scandal is awaited.

No one can be certain when the report will be released, although some sources have indicated it could be later today.

Liz Truss, the foreign secretary, confirmed this morning that Prime Minister Boris Johnson hadn’t yet received the document, adding ‘it’s a matter for Sue Gray when she sends that report, when she’s completed her work.’

Andrew Sparrow, writer for The Guardian newspaper, considers that if the findings are damning, Conservative MPs who have been holding back from demanding a vote of no confidence in the prime minister could submit the necessary letters.

Sparrow writes that ‘there is a very real chance of that vote happening before the end of the week’: uncertainty over the fate of Westminster is exerting Sterling headwinds in the meantime, dissuading GBP investors from placing bullish bets.

GBP/AUD Exchange Rate Forecast: Risk Appetite, British Politics to Influence Trading?

Looking ahead, the Pound Australian Dollar (GBP/AUD) exchange rate is likely to be affected by risk sentiment through the remainder of the session, alongside any further developments regarding the ‘Partygate’ report.

If risk appetite remains strong, AUD could extend its upside against GBP, while the latter is subdued by political controversy.

In addition, global geopolitics could also influence market dynamics. With tensions ongoing between Russia and Ukraine, developments in that quarter could limit risk-off trading.

Olivia Evershed

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