Pound Australian Dollar (GBP/AUD) Exchange Rate Subdued as BoE and Ofgem to Stoke Volatility?
The Pound Australian Dollar (GBP/AUD) exchange rate is flat on Thursday morning ahead of the Bank of England’s (BoE) interest rate decision at midday.
Concerns over a cost of living crisis in the UK, with energy bills set to surge, are also weighing on Sterling sentiment to leave GBP/AAUD trading just above AU$1.90.
The Australian Dollar is also subdued following comments from Reserve Bank of Australia (RBA) Governor Philip Lowe, and lacklustre Australian economic data.
Pound (GBP) Subdued as Markets Await BoE and Energy Price Cap Announcements
The Pound (GBP) is trading in a narrow range this morning ahead of the Bank of England (BoE) interest rate decision at midday.
While markets widely anticipate an interest rate rise to 0.5% from 0.25%, investors are awaiting more insight into the BoE’s forward guidance.
GBP investors will look for signals of how many interest rate rises are likely through 2022, and whether the central bank will begin quantitative tightening.
The BoE provided monetary stimulus through the pandemic with its bond-buying programme, and many economists believe the central bank will signal plans to begin unwinding its £875 billion of assets.
Meanwhile, concerns over a cost-of-living crisis in the UK are limiting strength in GBP exchange rates ahead of energy regulator Ofgem’s announcement on the energy price cap.
Ofgem appears set to announce the largest ever rise in energy bills in the UK, amid soaring global natural gas prices.
The higher price cap will likely mean average energy bills will rise by as much as 50%, which could be around £2000 a year, up from nearly £1300 this winter.
An announcement from the UK government is scheduled to follow Ofgem’s announcement, with the Treasury outlining plans to soften the blow of the cost rise through loans and council tax rebates.
However, with inflation also soaring, the rise in costs looks set to hit consumer spending and may pose a risk to UK economic growth.
Australian Dollar (AUD) Lacks Direction on RBA Comments
The Australian Dollar (AUD) is also rangebound so far on Thursday morning as comments from Reserve Bank of Australia (RBA) Governor Philip Lowe continue weighing on AUD sentiment, and finalised services PMI data for January confirmed a first contraction in activity in four months.
While Lowe struck a dovish tone that reiterated a rate hike would likely be a year or more away, some investors have priced in a rate hike this year rise as inflation has jumped in Australia more than the RBA expected.
However, investors did appear to have pushed back rate hike expectations from May to June 2022, which has weighed on ‘Aussie’ sentiment.
Lowe’s comments on unemployment potentially falling under 4% has fuelled some optimism in the Australian economy. He said:
“We have a unique opportunity here to get people into jobs and get their incomes growing more quickly, and we can do that without running an unacceptable risk on inflation.”
Meanwhile, the finalised services PMI for January failed to provide the Australian Dollar any support despite an upward revision from initial estimates.
The index still indicated a first contraction in four months in business activity in the service sector, coming in at 46.6 in January, below the 50 mark that indicates growth.
Trade data from December also failed to provide AUD any support, with a smaller trade surplus on the previous month as imports rose more than expected.
However, the trade surplus for 2021 surged to AU$122.04 billion, up from AU$73.59 in 2020.
Pound Australian Dollar Forecast: Major Announcements Set to Drive GBP/AUD
The Pound Australian Dollar exchange rate looks set for significant movement going into the weekend with the BoE rate decision and the UK energy price cap announcements today.
The two major announcements will likely offset this morning’s upwardly revised UK services PMI for January that indicated better-than-expected business activity than previously thought, and above December’s 10-month low.
Meanwhile, the Australian Dollar may experience more movement overnight with the RBA statement on monetary policy potentially providing more insight into the central bank’s policy stance.
Market risk appetite will also continue driving the risk-sensitive Australian Dollar’s movement.