GBP/AUD Exchange Rate Weakens as Shanghai Eases Lockdown
The Pound Australian Dollar (GBP AUD) exchange rate is trading on the back foot this morning as the ‘Aussie’ is buoyed by the prospect of easing lockdown measures in China.
At the time of writing the GBP AUD exchange rate is trading at around AU$1.7541, down roughly 0.3% from this morning’s opening levels.
Australian Dollar (AUD) Firms as Shanghai Factories to Reopen
The Australian Dollar (AUD) is trending higher against the Pound (GBP) and the majority of its other peers so far this morning as AUD investors welcome the decision by Chinese authorities to begin easing the lockdown measures in Shanghai.
Following China’s worst Covid outbreak since the start of the pandemic, 25 million people in Shanghai have found themselves in a strict lockdown as part of the country’s zero-Covid policy.
These lockdowns had have major consequences for the city’s industrial sector, with the closure of most factories in the city undermining AUD exchange rates for fear it will negatively impact demand for Australian commodity exports.
The news that factories in the city will be allowed to reopen, so long as they operate in a closed-loop system, has therefore been welcomed by AUD investors and propelled the Australian Dollar higher this morning.
Pound (GBP) Undermined by BoE Rate Hike Doubts
At the same time, the Pound (GBP) is struggling to attract support this morning, amidst growing speculation that the Bank of England (BoE) might refrain from raising interest rates again next month.
The odds of a May rate hike have been gradually falling in recent days, with GBP investors growing increasingly doubtful that there is enough bullish conviction within the BoE to follow through with a fourth consecutive hike.
While UK inflation continues to surge there are fears that should the BoE act too aggressively it could increase the risk of the country stumbling into a recession this year.
Elsewhere the Pound also continues to be weighed down by the International Monetary Fund’s (IMF) latest global growth forecasts, in which it predicts the UK will have the weakest growth of the G7 in 2023.
Pound Australian Dollar Forecast: BoE Bailey Speech in the Spotlight
Looking ahead to the second half of the week, the direction of the Pound Australian Dollar exchange rate may be driven by remarks from BoE Governor Andrew Bailey at the IMF/World Bank meeting on Thursday.
If Bailey appears to strike a more cautious tone regarding future interest rate hikes then Sterling could face some notable selling pressure.
Friday will then see the release of the UK and Australia’s latest PMI figures.
The UK releases could drag on the Pound if they show that the UK’s cost-of-living crisis had a larger than expected impact on economic activity this month.
Meanwhile the Australian Dollar could be bolstered if Australia’s PMI print robustly.