Pound Australian Dollar (GBP/AUD) Exchange Rate Rebounds, Dips Again on Mixed BoE Messages

Pound Australian Dollar Exchange Rate Relinquishes Gains on BoE Headwinds

(Updated 16:50, 05/05/2022) The Pound Australian Dollar (GBP/AUD) exchange rate is trending down again this afternoon despite a brief rebound around midday. The Pound (GBP) benefitted briefly following the Bank of England (BoE)’s rate hike decision, but fell thereafter on dovish messaging.

As expected, the BoE’s Monetary Policy Committee (MPC) hiked interest by 25bps, to 1% – economists speculated that upside would be unlikely given the more hawkish decision of the Federal Reserve to hike rates by 50bps yesterday.

Nevertheless, the fact that three of the bank’s nine rate-setters voted for a 50bps hike may have been responsible for Sterling’s brief uptick.

Triggering subsequent downside were dovish remarks from BoE officials in the wake of the interest rate decision. Governor Andrew Bailey remarked that the central bank is not planning to sell gilts before August, adding that there is still a lot of work to be done before then.

Further signs that policymakers believe market expectations have gone too far dampen GBP trading sentiment; economists at TD Securities expect reinforced weakness in the British pound.

‘Macro forecasts based on the yield curve were downgraded sharply,’ say TDS representatives; ‘[forecasts of] 10% inflation in 2022 and negative GDP growth in 2023 send a strong signal to markets that the anticipated rate path is too high.’

Original article continues below:

GBP/AUD Exchange Rate Drops as AU Trade Balance Impresses

The Pound Australian Dollar (GBP/AUD) exchange rate is sliding this morning following the publication of better-than-expected trade data from Australia. Meanwhile, GBP investors anticipate a 25bps rate hike from the Bank of England (BoE) later today.

At the time of writing, GBP/AUD is trading at A$1.7359, down 0.3% from today’s opening levels.

Pound (GBP) Slumps Ahead of BoE Decision

The Pound (GBP) is trending down this morning ahead of today’s interest rate decision from the Bank of England; economists predict the bank will increase its base rate by at least 0.25 percentage points to 1%.

If policymakers go ahead with the hike, interest rates will hit their highest level since the 2008 financial crisis, despite mounting concerns that the economy is weakening on account of the UK’s cost-of-living crisis.

Signs of weakness include an unexpectedly large decline in March’s retail sales and a drop in April’s consumer confidence to the second-lowest level in almost 50 years.

Kallum Pickering, a senior economist at Berenberg, remarks that a cautious approach is probably appropriate:

‘Amid plunging consumer confidence and evidence of a pullback in household demand, [raising rates] is not without risk, in our view.

If we are unlucky, the UK is already in the early stage of a recession.’

Rising interest rates would also open the door to the bank selling down some of its £875bn portfolio of UK government bonds built up through its quantitative easing programme.

Australian Dollar (AUD) Trades Sideways Following AU Trade Balance

While climbing against Sterling, the Australian Dollar (AUD) is trading in a mixed range against its other peers following the publication of AU trade data.

Australia’s trade surplus increased to A$9.314bn in March 2022 from A$7.437bn the previous month amid a decline in imports; exports edged up 0.1% to A$49.45bn.

Risk-on flows go some way to support the ‘Aussie’, while reassurances from the Federal Reserve that the US central bank will not enact a 75bps rate hike this year limit downside on central bank policy divergence.

Nevertheless, AUD investors are cautious of placing significant bets ahead of tomorrow’s monetary policy statement from the Reserve Bank of Australia (RBA). The publication will provide the strategic plan of RBA policymakers behind the unexpected rate hike decision.

The Antipodean currency geared up strongly after an unexpected rate hike by the RBA on Tuesday, as Governor Philip Lowe elevated the bank’s interest rate by 35 basis points to combat galloping inflation.

In a statement, Lowe said it was time to withdraw ‘some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic.’

Pound Australian Dollar Exchange Rate Forecast: BoE Decision to Decide Further Movement?

Looking ahead, today’s interest rate decision from the Bank of England is likely to be the main driver of movement in the Pound Australian Dollar exchange rate.

If the central bank keeps to expectations for a 25bps rate hike, Sterling may weaken on policy divergence from the Fed; a larger hike could buoy the currency. If policymakers strike a hawkish tone, GBP may enjoy further tailwinds.

Olivia Evershed

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