Pound Australian (GBP/AUD) Exchange Rate Rockets to 17-Day High Post-BoE Decision

Pound Australian Dollar Exchange Rate Spikes on BoE Rate Hike

(Update 16:50, 16/06/2022) The Pound Australian Dollar (GBP/AUD) exchange rate shot up this afternoon following the Bank of England (BoE)’s interest rate decision.

The UK’s central bank decided to hike rate by 25bps in a move that was widely anticipated, yet still disappointed some GBP investors initially. Several economists had speculated over the possibility of a 50bps rise and indeed, 3 of the BoE’s 9 rate-setters voted for a more aggressive hike.

However, the initial disappointment was soon overcome as the BoE acknowledged high inflation, but stressed that it must weigh inflationary pressures against a weakening economy. UK GDP contracted unexpectedly in April, highlighting the pressure financial markets are currently under.

Furthermore, markets expect consecutive interest rate hikes later this year, which could bring interest above 3pc by the end of 2022.

Original article continues below:

GBP/AUD Exchange Rate Trades Sideways as AU Unemployment Increases

The Pound Australian Dollar (GBP/AUD) exchange rate has fluctuated already this morning as markets react to Australia’s unemployment data. Meanwhile, the Pound (GBP) is subdued as investors await today’s interest rate decision from the Bank of England (BoE).

At the time of writing, GBP/AUD is trading at A$1.7330, virtually unchanged from today’s opening levels.

Pound (GBP) Drops as Investors Turn Bearish

The Pound has slumped against its peers so far today as investors await this afternoon’s interest rate decision. A lack of data ahead of the event leaves GBP exposed to risk-off trading sentiment.

Markets anticipate a small hike from the BoE, taking the bank rate from 1% to 1.25%. With interest rates expected to reach 2.80% by the end of the year, analysts at ING predict that ‘at some point there will be a ‘day of reckoning’ for Sterling when the BoE aggressively wants to correct market expectations’; but they do not think this day will occur imminently.

Compared to other major central banks, the BoE’s moderate stance is an outlier; the Federal Reserve hiked interest by 0.75bps yesterday – the largest rate rise since 1994. Nevertheless, the argument for a smaller interest rate hike is compelling. James Lynch, fixed income manager at Aegon Asset Management, observes that:

‘The dovish view can be emboldened by the slowdown in GDP growth.’

Furthermore, markets are likely to be focused on the potential for a global recession, as weak retail statistics emerge and European markets retreat. Chris Beauchamp, chief market analyst at IG Group, says growth worries are pushing markets down:

‘It hasn’t taken long for the post-Fed bounce in stocks to fade, and given the gloomier outlook for growth that is hardly surprising…  growth is slowing, earnings are still falling and prices keep on rising.’

Australian Dollar (AUD) Wavers on Mixed Employment Data

The Australian Dollar (AUD) is trading in a mixed range today following May’s jobs report, which revealed that unemployment remained at 3.9% rather than falling to 3.8% as expected.

On the other hand, jobs in Australia increased by 60.6K as opposed to the 25K forecast, tempering downside. Full-time employment increased by 69.4K to 9.44m while part-time employment fell 8.7K to 4.07m. Over the year to May, employment gained 386,100 or 2.%.

Overall analysis of the data is positive, as ABC observes that despite May’s small uptick, the country’s unemployment rate sitting close to a 50-year low. Callam Pickering, APAC economist at global job site Indeed, remarked:

‘This is an outstanding result… Particularly given the growing concerns around inflation and higher interest rates.

The next 12 months won’t be easy, but we enter this challenging period from a really strong position that will hopefully allow households and businesses to weather the storm.’

Elsewhere, forecasters predict sustained hawkishness from the Reserve Bank of Australia (RBA).

Westpac economists consider that Governor Philip Lowe will be comforted by May’s record high employment/population ratio, but that equity prices could be capped by nasty global combination of soaring inflation and slowing growth.

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

The Bank of England’s interest rate decision is likely to be the main market mover this afternoon.

If the central bank hikes rates by 25bps as expected, Sterling may undergo an initial dip as GBP bulls express disappointment.

However, if the BoE raises interest by a greater amount, downside in the Pound is likely to be more sustained on fears of a recession. While markets could enjoy initial tailwinds on hawkish policy action, such optimism may fade pretty quickly, given current market conditions.

Olivia Evershed

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