The Pound Australian Dollar (GBP/AUD) exchange rate traded narrowly for most of the week until the Bank of England (BoE) staged a late intervention to steady the markets.
What’s Been Happening: GBP/AUD Exchange Rate Wavered amid Economic Uncertainty
The Pound (GBP) started the week relatively muted as the market still reacted to Chancellor Kwasi Kwarteng’s mini-budget. Hopes of a BoE intervention were soon quashed as the central bank declined to act until November. Investors’ confidence continued to waver and the Pound with it.
Midweek, and the International Monetary Fund (IMF) released a rare statement urging the UK government to rethink their sweeping tax cuts.
However, the BoE were left with little choice but to intervene to steady the markets. Temporary purchasing of government bonds was announced to subdued reaction.
But by the end of the week, Sterling continued its modest recovery, helped by positive GDP growth. The UK economy unexpectedly expanded by 0.2% QoQ, versus -0.1% forecasts.
Meanwhile, the Australian Dollar also started the week slowly despite an improving risk appetite. However, that sentiment didn’t last long and a more risk-averse market sapped demand for the risk-sensitive ‘Aussie’. Russia announced plans to annex four regions of Ukraine, rocking global market sentiment.
Towards the end of the week, a worse-than-expected contraction in China’s manufacturing sector dragged the Australian Dollar down. Marking the second consecutive month of contraction, the Caixin PMI reported the lowest reading since April.
Three Things to Watch Out for This Week
- RBA Interest Rate Decision
Expectations of a 50bps interest rate hike could bolster the ‘Aussie’.
- UK Politics
All eyes will be on Prime Minister Liz Truss and her response to the market meltdown. A potential reversal of tax cuts could boost the Pound.
- UK Manufacturing & Services PMI
If the final services PMI prints as forecasted, it would mark the first contraction in the sector since February 2021.
Pound Australian Dollar Forecast
Elsewhere, global market sentiment will hinge on the developments in Ukraine. Any further negative news could weigh down the risk-sensitive ‘Aussie’.