Pound Australian Dollar (GBP/AUD) Exchange Rate Falls as Cautious BoE Rate Hike Disappoints Markets

Pound Australian Dollar (GBP/AUD) Exchange Rate Slips after 0.5% BoE Rate Hike

(Updated 16:40 22/09/22)

The Pound Australian Dollar (GBP/AUD) exchange rate fell over the course of the day. The losses for the pair came after the Bank of England (BoE) announced a 0.5% interest rate hike. The hike was more cautious than expected, with markets having previously priced in a 75% chance of a 0.75% rate hike. The central bank’s dovish approach likely weighed on the pair today, and saw Sterling fall back to its weakest point in 37 years.

GBP/AUD also struggled after warnings from the BoE that the UK enter into a recession in the third quarter of 2023. The central bank signaled that GDP would see a further 0.1% decline in the third quarter amid a sharp drop in consumer spending.

At time of writing the GBP/AUD exchange rate is at around $1.6970, which is down around 0.3% from the morning’s opening figures.

Original article continues below:

Pound Australian Dollar (GBP/AUD) Exchange Rate Trends Sideways Ahead of BoE Meeting

The Pound Australian Dollar (GBP/AUD) exchange rate is trading in a narrow range today. Markets are likely cautious ahead of the Bank of England’s interest rate decision later today. Bets on a 0.75% rate hike may be limiting losses for the pair, as well as a risk-off trading sentiment.

At time of writing the GBP/AUD exchange rate is at around $1.7008, virtually unchanged from this morning’s opening figures.

Pound (GBP) Firms as Bets on 0.75% BoE Rate Hike Increase

The Pound (GBP) is currently ticking higher ahead of the BoE’s interest rate decision later today. Sterling is recovering ground after having hit a fresh 37-year low against the US Dollar (USD) this morning.

Markets have increasingly priced in a 0.75% interest rate hike from the central bank. The fresh speculation comes after strong wage growth data last week, as well as an uptick in core inflation. Such a move would be the BoE’s largest since 1989, and the hawkish bets may be helping to bolster the currency today.

There are fears that such a move could push UK households into even greater debt, however. The prospect of increased mortgage costs may be contributing to the UK’s poor outlook, limiting gains for the Pound.

Additionally, fears that UK debt could rise to unsustainable levels may also be limiting enthusiasm for the Pound. Economists are concerned that the UK government’s proposed sweeping tax cuts and energy support package could push borrowing even higher than August’s £11.8b.

Australian Dollar (AUD) Drops amid Risk-Off Mood

The Australian Dollar (AUD) is slipping today amid a retreat in global risk appetite. The US Federal Reserve’s aggressive rate hike has prompted a wave of risk-off trading, potentially denting appeal for the ‘Aussie’.

The rate hike from the Fed also heaped pressure on the Reserve Bank of Australia (RBA) to pursue a more hawkish path at their next meeting. The RBA is largely expected to press ahead with a more cautious path, however. This may be in turn weighing on AUD.

Comments from RBA Deputy Governor Michele Bullock earlier this week only added to the RBA’s dovish stance. Speaking on Wednesday, Bullock signalled that the inflationary pressures weren’t as severe in Australia compared to the US & UK.

A slip in iron ore prices may also be pulling the ‘Aussie’ lower today. Prices of the commodity are down around 1.5% amid continued woes for the Chinese property sector.

GBP/AUD Exchange Rate Forecast: Will BoE Commit to Above-Forecast Rate Hike?

Looking ahead for the Pound, the BoE’s interest rate decision later today is set to cause significant movement in Sterling. If the central bank pushes ahead with the 0.75% rate, then it could see Sterling soar. On the other hand, a more cautious 0.5% hike could see limited upward movement for GBP.

Investors will also be looking at the meeting minutes following the decision for any signals of the BoE’s forward path.

On Friday, poor data for the UK’s private sectors could see the Pound slide. September’s PMIs are expected to show the manufacturing sector in decline, with the country’s dominant services sector to stall. Additionally, a drop in distributive trades figures could add to the sector’s poor outlook and weigh on GBP.

The Australian Dollar (AUD) may also see movement off the back of Friday’s PMI figures. Whilst private sector is expected to ease, the country’s manufacturing and services sectors are forecast to remain in growth. The data could help to strengthen AUD if it prints as forecast.

Gareth Monk

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