Pound Australian Dollar Exchange Rate Plummets Following BoE Rate Hike
(Updated 14:45, 17/3/22) The Pound Australian Dollar (GBP AUD) exchange rate plummeted this afternoon in the wake of the Bank of England’s latest interest rate decision.
While the BoE raised interest rates from 0.5% to 0.75% as expected, GBP investors were left disappointed by the BoE’s cautious forward guidance.
The minutes from the BoE’s March policy meeting suggest that while some ‘further modest tightening’ might be warranted the current economic challenges posed by the Russia-Ukraine war make the outlook highly uncertain.
In addition, the BoE warned that the conflict in Eastern Europe has weakened the UK’s economic outlook, adding to the Pound’s woes.
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GBP/AUD Exchange Rate Subdued ahead of BoE Rate Hike
The Pound Australian Dollar (GBP/AUD) exchange rate is on the defensive this morning as markets await the Bank of England’s (BoE) latest interest rate decision.
At the time of writing the GBP AUD exchange rate is trading at around AU$1.7980, down roughly 0.2% from this morning’s opening levels.
Pound (GBP) to Rally on Hawkish BoE Rate Decision?
The Pound (GBP) is on the back foot this morning in the lull ahead of the BoE’s latest interest rate decision, but will an expected rate hike help Sterling to rally later this afternoon.
The BoE is widely expected to deliver a rate hike of 25 basis points when it concludes its March policy meeting. This will be the bank’s third consecutive rate hike as it seeks to tame soaring inflation in the UK.
However, the BoE will be treading a narrow line as it is also wary that raising interest rates too aggressively could undermine the UK’s economic recovery.
With a quarter percentage hike largely priced in, the main catalyst of movement in the Pound may be the bank’s forward guidance.
Should the BoE signal it will continue to raise interest rates in the coming months then it’s likely we could see the GBP/AUD exchange rate strengthen this afternoon.
Australian Dollar (AUD) Buoyed by Strong Employment Figures
The Australian Dollar (AUD) is trending higher against the majority of its peers this morning, in response to Australia’s latest jobs report.
According to data published by the Australian Bureau of Statistics (ABS) domestic unemployment fell from 4.2% to 4% in February. This beat expectations for a more modest fall to 4.1%, while also being the lowest jobless rate since 2008.
In addition, the ABS also reported almost the entirety of the jobs added last month were for full-time positions.
AUD investors welcomed the upbeat figures as they reinforced expectations the Reserve Bank of Australia (RBA) may raise interest rates later in the year as inflation is also running hot.
Gareth Aird, head of Australian economics at CBA, suggests:
‘Our central scenario remains that the [March quarter] consumer price index will print a lot stronger than the RBA’s implied profile, and we anticipate that the RBA will move to an explicit hiking bias at the May Board meeting.’
Pound Australian Dollar Forecast: GBP/AUD Exchange Rate to Remain Sensitive to Ukraine Conflict?
Looking past the BoE’s interest rate decision, the Pound Australian Dollar exchange rate is likely to remain sensitive to developments in Ukraine through the end of the week.
This could see the GBP/AUD exchange rate strengthen if peace talks between Ukraine and Russia continue to show progress. GBP investors are hoping for a swift end to the conflict on hopes it will help to alleviate inflationary pressures in the UK.
Meanwhile, expectations for a negotiated end to the war may continue to suppress commodity prices, which would limit demand for the Australian Dollar.