Pound Australian Dollar (GBP/AUD) Weekly Forecast: Exchange Rate Spikes Following BoE Decision

The Pound Australian Dollar (GBP/AUD) exchange rate sloped in the first half of last week on lacklustre UK economic data and the threat of a trade war. GBP/AUD shot up in the latter half of the week, however, as the Bank of England (BoE) raised interest rates by 25bps.

What’s Been Happening: Pound Faces Multiple Headwinds

The Pound (GBP) slumped against the Australian Dollar (AUD) at the beginning of the week, weighed down by weaker-than-expected UK GDP.

Sterling headwinds persisted on Tuesday as unemployment hit 3.8% and the gap between inflation and wages continued to grow.

The Australian Dollar also came under pressure as fears of a global recession subdued trading; meanwhile, NAB business confidence printed at half of the figure expected.

On Thursday, GBP/AUD spiked following the BoE’s interest rate decision: the central bank hiked rates by a modest 25bps as recessionary fears tempered hawkish instincts.

GBP then dipped slightly against the ‘Aussie’ but retained the majority of its gains and continued to climb toward the week’s end. A fragile market mood limited AUD demand, while the price of iron ore – one of the country’s main exports – hit a six-month low.

Three Things to Watch Out for This Week

  1. RBA Minutes

The Reserve Bank of Australia (RBA) will publish the minutes from its latest meeting tomorrow. Will a hawkish outlook from the bank buoy the ‘Aussie’?

  1. UK Inflation

May’s consumer price index is forecast to report inflation continued to climb in May, with Sterling potentially retreating if this stokes cost-of-living concerns.

  1. UK Retail Data

UK sales growth in May is expected to have fallen, likely weakening the Pound.

Pound Australian Dollar Forecast

The Pound Australian Dollar exchange rate opens this week on the defensive. This trend may reverse this afternoon if comments from BoE policymaker Catherine Mann strike a hawkish tone – Mann voted for a larger interest rate increase than the 25bp hike delivered last week.

Otherwise, a fairly weak market mood could subdue AUD against the Pound, recouping some losses for the latter. Risk-off headwinds may persist given Ukrainian President Zelenskyy’s warning of an ‘increase in Russian hostilities’.

Olivia Evershed

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