GBP/AUD Exchange Rate Levels at 15-Day High as Pound Strength Wavers
(Updated 16:45, 6/09/2022) The Pound Australian Dollar (GBP/AUD) exchange rate continued to climb this morning, levelling in the afternoon as Sterling tailwinds were tempered by the suggestion that the Bank of England (BoE) may not hike interest rates so aggressively henceforth.
The central bank has so far considered it necessary to tighten monetary policy in an attempt to curb spiraling inflationary pressures. Yet this may no longer be the case if support measures proposed by new Prime Minister Liz Truss are effective at bringing inflation down.
A senior economist at HSBC addressed the situation:
‘If she [Liz Truss] were to freeze the cap at current levels, it could even mean that inflation has already peaked.
That would potentially reduce inflation expectations and the likelihood of a wage-price spiral – the two key reasons why the BoE chose to get ‘forceful’ in August.’
Truss’s plans reportedly involve implementing an 18-month energy price freeze as well as spending approximately £40bn to help small businesses deal with rising power costs. This could cost the government around £170bn in total.
As it looks like the government will need to borrow more money ahead, government bond yields have continued to spike. The 10-year UK gilt yield is up to 3.10%: the highest it’s been since 2011.
Original article continues below:
Pound Australian Dollar Exchange Rate Climbs as AUD Investors Underwhelmed
The Pound Australian Dollar (GBP/AUD) exchange rate is trending up today as markets respond indifferently to the Reserve Bank of Australia (RBA)’s 50bps rate hike, while Pound (GBP) investors are optimistic regarding the election of new Prime Minister Liz Truss.
At the time of writing, GBP/AUD is trading at A$1.7095, up 0.7% from today’s opening levels.
Australian Dollar (AUD) Weakens as RBA Hikes as Expected
The Australian Dollar (AUD) is tumbling against several peers today following the decision of the RBA to hike interest rates by 50 basis points this morning. The move was largely anticipated and priced in, explaining the absence of tailwinds resulting from the decision.
The central bank’s accompanying statement was relatively hawkish in tone, as RBA Governor Philip Lowe affirmed that the Board is committed to doing what is necessary to ensure inflation returns to target.
Tempering optimism, however, was some dovishness in describing the situation ahead. Lowe remarked:
‘An important source of uncertainty continues to be the behaviour of household spending. Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments.
Consumer confidence has also fallen, and housing prices are declining in most markets after the earlier large increases.’
Also failing to buoy the ’Aussie’ significantly this morning are a stronger risk appetite and a pullback in the US Dollar (USD). Downward pressure may be stemming in part from listless trading in the Australian equity markets.
Pound (GBP) Trades Mixed as Truss Succeeds Johnson as PM
The Pound is enjoying a boost against several peers today on expectations that the incoming Prime Minister will soon implement economic support measures. Decisive action is sorely needed as consumer prices rise and living conditions fall.
The new PM will officially become the country’s leader today after outgoing Prime Minister Boris Johnson tenders his resignation to the Queen. Truss will then have an audience with Her Majesty, following which the Pound may fluctuate.
The new Conservative leader has already stated her intentions to freeze energy bills and pledged to ‘do all that [she] can to help struggling households.’ She is expected to unveil an emergency package imminently and is reported to have been engaged in talks with energy bosses to go over the details.
Some remain sceptical of Truss’s plans, however, implying that her commitment to tackling the economic downturn may have just been a campaign tactic.
Neil Wilson of Markets.com comments: ‘What are we talking about here? It’s kind of trickle-down, watered-down Reaganomics – lower taxes designed to boost business investment and consumer spending. She talked about a ‘bold plan to cut taxes’, which might not help the inflation fight much if it’s not terribly targeted.’
Further capping Sterling gains is a report from the British Retail Consortium (BRC), confirming that retails sales growth slowed in the year to August, compared with last month. The reading printed above expectations, however, at 0.5% rather than 0.3%.
Pound Australian Dollar Exchange Rate Forecast: UK Developments to Direct Movement?
For the remainder of today’s European session, movement in the Pound Australian Dollar exchange rate is likely to be dictated by political dynamics in the UK.
Today is a big day for the British economy, as the appointment of a new Prime Minister heralds the entry of new policies and likely support measures.
Elsewhere, this evening’s services index release could have some impact upon GBP/AUD. Activity in the Australian service sector looks to have expanded at a slower pace in August according to the Ai Group: if this is the case, AUD could tumble.