Pound Australian Dollar (GBP/AUD) Exchange Rate Slumps as BoE Hikes Interest Rates

Pound Australian Dollar (GBP/AUD) Exchange Rate Falls amid Downbeat BoE Outlook

(Updated 16:35 04/08/22)

The Pound Australian Dollar (GBP/AUD) exchange rate continued to see losses over the course of the day. The exchange rate’s drop came as the Bank of England (BoE) predicted a fourth quarter recession for the UK economy.

The currency pair managed to regain some ground however, likely spurred higher by bets on future aggressive rate hikes from the BoE. Governor Andrew Bailey signalled that ‘all options are on the table’ for the BoE’s September meeting.

At time of writing the GBP/AUD exchange rate is at around $1.7433, which is down around -0.3% from this morning’s opening figures.

Pound Australian Dollar (GBP/AUD) Exchange Rate Tumbles as BoE Hikes Rates by 0.5%

(Updated 12:13 04/08/22)

The Pound Australian Dollar (GBP/AUD) exchange rate has slipped further after the Bank of England (BoE) hiked interest rates by 0.5%. The move was in line with expectations, with a 8-1 majority of the central bank’s Monetary Policy Committee (MPC) voting in favour of the hike.

Dour predictions for the UK economy alongside the interest rate decision are the likely cause for exchange rate’s further losses. The BoE stated that inflation is set to hit 13% in 2022 and predicted the UK to enter a recession in the year’s fourth quarter.

At time of writing the GBP/AUD exchange rate is at around $1.7348, which is down around -0.8% from this morning’s opening figures.

Original article continues below:

Pound Australian Dollar (GBP/AUD) Exchange Rate Dips amid Risk-On Mood

The Pound Australian Dollar (GBP/AUD) exchange rate is slumping today amid a risk-on trading sentiment. Limited bets on the Pound ahead of the Bank of England’s (BoE) interest rate decision may also be pulling the currency pair lower.

At time of writing the GBP/AUD exchange rate is at around $1.7439, which is down around -0.3% from this morning’s opening figures.

Pound (GBP) Muted ahead of BoE Interest Rate Decision

The Pound (GBP) is seeing subdued bets ahead of the Bank of England’s interest rate decision later today. The central bank is largely expected to hike interest rates by 0.5% at this month’s meeting.

BoE Governor Andrew Bailey has hinted at more aggressive moves in recent weeks. Bailey signalled that a 0.5% rate hike was ‘on the table’. Bailey also stated that the central bank would curb soaring inflation, ‘no ifs or buts’.

Some investors still see a possibility of a more cautious move from the BoE, however.

Speaking on the interest rate decision, analysts at ING said:

‘Admittedly, there’s a chance we simply get another 25bp move, given there’s not much in the recent economic data flow to suggest the BoE needs to move more aggressively than it did in June.’

Revised inflation forecasts for the UK may also be limiting movement for Sterling today. In reports released on Wednesday, the Resolution Foundation stated that inflation could climb as high as 15% by the start of 2023.

Australian Dollar (AUD) Climbs as Trade Surplus Hits Fresh Record High

The Australian Dollar (AUD) is trending higher against its rivals today. A mild return of risk appetite may be lending support to the ‘Aussie’ today. The shift in risk appetite comes amid a generally positive tone in the equity markets.

An above-forecast increase to the country’s trade surplus could also be pushing the currency higher. June’s figures rose to A$17.67B, a new record-high, versus a forecast fall to A$14B. The increase was aided by strong shipments of coal, iron ore, and grain.

Andrew Hanlan, senior economist at Westpac, said:

‘Export earnings surged during the June quarter, reflecting a combination of higher prices and a welcome lift in volumes, off a relatively subdued base.’

On the other hand, a drop in iron ore prices may be capping gains for the currency. A slump in China’s property sector likely weighed on the commodity despite an upturn in demand at the country’s steel mills.

GBP/AUD Exchange Rate Forecast: Will BoE Hike Rates by 0.5% as Expected?

The Bank of England’s interest rate decision later today is likely to prompt movement in the Pound. The impact of a 0.5% rate hike could be limited given that markets have largely priced in the move. If the central bank surprises with a more cautious move then Sterling could slip.

Any notable comments in the MPC meeting minutes could also cause shifts in the Pound’s fortunes.

Domestic headwinds may weigh on GBP over the rest of the week. Continued political uncertainty as well as the UK’s ‘summer of discontent’ could see the currency dip.

For the Australian Dollar, a forecast fall in growth for the country’s services sector could cap gains for the ‘Aussie’ if Thursday’s figures print as forecast.

Friday’s statement from the Reserve Bank of Australia (RBA) could also pull AUD lower if the central bank maintains its recent dovish tone. The RBA has sought to reign in bets on further aggressive hikes after its interest rate hike earlier this week.

Gareth Monk

Contact Gareth Monk


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