Pound Australian Dollar Exchange Rate Ticks Lower on Mixed BoE Comments
(Updated 17:00, 23/02/2022) The Pound Australian Dollar (GBP/AUD) exchange rate continued to fall through this afternoon’s session as commentary from Bank of England (BoE) Governor Andrew Bailey exerted GBP downside.
Bailey appeared in an interview today with the Treasury select committee, alongside colleagues Ben Broadbend, Jonathan Haskel and Silvana Tenreyro. While he stuck to a reasonably aggressive policy tightening outlook, the Governor’s remarks over wage growth irked several listeners.
Bailey had previously urged staff not to ask for wage rises, as it could exacerbate inflationary pressures: he reiterated the same sentiment today, remarking:
‘My concern is the second-round effects. If everybody tries to get ahead of the [inflation] shock we’ve had from outside… it gets worse.’
In response, interviewer Angela Eagle prompted Bailey to reveal his own salary, drawing a comparison between the £500,000+ figure and the £9.01 an hour paid to innumerable care workers:
Following this exchange, Gov. Bailey iterated that his comments were meant ‘in the context of large pay rises.’
Regarding sanctions, the BoE panel said the central bank fully supported the government’s sanctions and would give any help required. Bailey reassured markets, however, that the UK banks’ exposure to Russia is very low, and ‘[he doesn’t] see a systemic risk to the UK banking system.’
Original article continues below:
GBP/AUD Exchange Rate Eases Lower on Quiet Trading Mood
The Pound Australian Dollar (GBP/AUD) exchange rate is trending down this morning on quiet trading conditions. Market sentiment is moderately upbeat, as economists and central banks prepare to look past geopolitical tensions.
At the time of writing, GBP/AUD is trading at A$1.8742, down 0.3% from today’s opening levels.
Pound (GBP) Trades Mixed, Buoyed by Upbeat Market Sentiment
The Pound (GBP) is trading in a mixed range against its peers this morning, but climbs against safe-haven currencies such as the US Dollar (USD) and the Swiss Franc (CHF). Given an improving market mood, Sterling is able to find support on its comparatively risk-on status.
Although the situation in Ukraine remains fraught, the fact that new economic sanctions are not as bad as expected has helped to ease some nervousness. Comments from UK Foreign Minister Liz Truss strike a note of urgency but are vague in terms of definite action:
While warning that ‘we are very much expecting a full-scale Russian invasion of Ukraine’, Truss conceded that ‘we don’t have full evidence yet that Putin has sent in troops’ and was unable to specify what Britain’s response to such an invasion may be.
Furthermore, the Pound continues to gain on Bank of England (BoE) rate hike bets. Deputy Governor Dave Ramsden commented yesterday that some further policy tightening is likely to be appropriate in the coming months, bolstering expectations; investors are also pricing in a rate hike at the BoE meeting scheduled on 17 March.
Australian Dollar (AUD) Firms despite Weak Construction Data
The Australian Dollar (AUD) is also enjoying a boost from today’s comparatively risk-on mood, climbing against its peers despite Australia’s disappointing construction data published this morning.
Construction work fell in the fourth quarter of 2021 by 0.4%, rather than improving by 2.5% as expected. The fall was driven by a 1.3% decrease in building work done in the December quarter, which itself resulted from a 2.9% drop in residential construction.
Nevertheless, newly open borders and strong words from Australia’s Prime Minister, Scott Morrison, are helping the ‘Aussie’ to resist downside. Fifty-six international flights touched down in Australia on Monday, 704 days after the country closed its borders, to widespread relief and jubilation.
Meanwhile, Morrison has confirmed that Australia will target Russia with a round of sanctions and will ‘ratchet up’ the response should military action in Ukraine continue. The Prime Minister told reporters in Sydney:
‘We will take this step by step and I can assure you those steps will get stronger and stronger.’
Pound Australian Dollar Exchange Rate Forecast: Pound to Tumble on Tenreyro Speech?
Looking ahead, a speech from BoE policymaker Silvana Tenreyro may influence Pound exchange rates later today. Tenreyro is a known dove – if she strikes a cautious tone, Sterling may tick down against its rival currencies.
Elsewhere, risk sentiment is likely to affect trading. So long as market sentiment remains upbeat, the Australian Dollar can enjoy further tailwinds – however, if a risk-off mood grips markets, AUD could well tumble against its safe-haven peers.