Pound Australian Dollar (GBP/AUD) Softens as Market Brace for Bumper Hike
The Pound Australian Dollar (GBP/AUD) exchange rate is struggling for demand this morning ahead of the Bank of England’s (BoE) key interest rate decision today.
At time of writing, the GBP/AUD exchange rate is around $1.7863, a 0.54% drop from this morning’s opening levels.
Pound (GBP) Undermined by Potentially Dovish Rate Hike
The Pound (GBP) is struggling for demand this morning as the market eyes the upcoming BoE interest rate decision.
Expectations of a bumper 75bps rate hike would be the biggest hike since 1989. However, with fears of a recession looking, there could be some pushback on that 75bps figure. Some members of the monetary policy committee (MPC) might opt for a smaller 0.5% increase, which could see the Pound slide.
After the disastrous mini-budget sent shockwaves through the market and sent Sterling spiralling, the BoE will have to tread lightly as they face another difficult decision. Shweta Singh, Senior Economist at Cardano, commented:
‘The BoE is faced with an incredibly difficult balancing act of orchestrating large rate hikes in a recessionary economy. Markets are pricing in a terminal rate of 480 bps by September 2023, which is 100bps lower than during early October, but is pretty punchy nonetheless.’
Australian Dollar (AUD) Buoyed Despite Risk-Averse Market Mood
Meanwhile, the Australian Dollar (AUD) is finding mixed success against its rivals this morning despite global market sentiment souring. Despite the Federal Reserve hiking interest rates by another 75bps as expected, risk sentiment was impacted by mounting recession fears.
Providing some moderate support to the Australian Dollar is the increase of trade surplus to a three-month high. Australia’s balance of trade easily beat forecasts and exports leapt 7% from a month earlier to the second highest on record. Throughout the year, Australia has been boosted by strong sales of iron ore and natural gas.
However, weighing on the ‘Aussie’ is further troubling news out of China. Caixin services PMI data printed below expectations and dropped to 48.4 from 49.3. The second month of contraction for the service sector highlights the continued impact of China’s zero-Covid policy. Wang Zhe, an economist at Caixin Insight Group, said of the data:
‘The negative impact of COVID controls on the economy lingered, and the economy was faced with increasing downward pressure.’
Pound Australian Dollar Exchange Rate Forecast: Dovish BoE to Sink the Pound?
Looking ahead, the Pound Australian Dollar exchange rate could see fluctuations as all eyes are on the BoE decision. With the perilous economic situation the UK finds itself in, economists warn that a 75bps rate hike might not be enough to lift Sterling.
Elsewhere, the Reserve Bank of Australia (RBA) will release their statement on monetary policy late tonight. Any further hints of future rate hikes could lift the ‘Aussie’.