Pound Australian Dollar (GBP/AUD) Exchange Rate Strengthens Despite Stark Warning from IMF

Pound Australian Dollar (GBP/AUD) Rallies Despite Growing Backlash Over Tax Cuts

The Pound Australian Dollar (GBP/AUD) exchange rate is climbing today despite criticism of the UK government’s sweeping tax cut plans from the IMF.

At time of writing, the GBP/AUD exchange rate is around $1.6740, a 0.43% jump from this morning’s opening levels.

Pound (GBP) Climbs amid Scathing Critique from IMF

The Pound (GBP) is enjoying mixed success against its peers today as the fallout from the mini-budget continues to cause chaos in the markets.

The International Monetary Fund (IMF) voiced its criticism of Chancellor Kwasi Kwarteng’s mini-budget from Friday. Sweeping tax cuts amid surging borrowing risked undermining the efforts of the BoE to tame inflation and urged the government to reconsider. In a rare criticism of a leading global economy, the IMF warned against large and untargeted fiscal packages amid such high inflationary pressures. It also said that Kwarteng has the chance to rectify the changes in the planned November statement:

‘(It presents an) opportunity for the UK government to consider ways to provide support that is more targeted and re-evaluate the tax measures, especially those that benefit high income earners’.

Meanwhile, BoE Chief Economist Huw Pill lent some modest support to the Pound yesterday as he confirmed that the central bank will need to act swiftly and significant. Pill also reassured investors that a significant monetary policy response will be coming.

Australian Dollar (AUD) Softens amid Risk-Off Mood

The Australian Dollar (AUD) is failing to find much support despite retail sales printing better than expected. An eighth straight month of growth pushed retail sales up by 0.6%, better than an expected 0.4% rise.

However, weighing heavily on the risk-sensitive ‘Aussie’ is the prevailing risk-averse market mood. Rising geopolitical tensions and mounting fears of a global recession is keeping a firm lid on any gains for the Australian Dollar. The Ukraine invasion continues to take its toll on market sentiment as Russia claims huge majorities of votes in favour to join Russia. Western leaders have dismissed the referendums as shams.

Meanwhile, two leaks have been reported in the Nord Stream 1 pipeline, which have now been called sabotage by European Commission President Ursula Von der Leyen. She subsequently threatened the ‘strongest possible response’ to deliberate disruption of European energy infrastructure.

Pound Australian Dollar Exchange Rate Forecast: BoE Speeches to Restore Confidence in the Pound?

Looking ahead, the Pound Australian exchange rate could see further movement with several speeches from the BoE. This evening, Monetary Policy Committee (MPC) member Swati Dhingra will be speaking on inflation and monetary policy. In her first policy vote late week, she was the only member to vote on a smaller 25bps rate hike. A dovish speech could see Sterling slip.

Meanwhile, any further developments in Ukraine could continue to weigh on global market sentiment, and in turn, the ‘Aussie’.

Danny Tingle

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