Pound Australian Dollar (GBP/AUD) Exchange Rate
(Updated 16:00, 1/2/23) The Pound Australian Dollar (GBP/AUD) exchange rate has seen limited movement today, clawing back earlier losses but remaining down following a fall in overnight trade.
The initial downside in GBP/AUD came as the risk-sensitive Australian Dollar (AUD) enjoyed an upbeat market mood. Signs that China’s vital manufacturing sector was recovering, following the country’s latest PMI release, also helped lift the ‘Aussie’ due to AUD’s status as a proxy for the Chinese economy.
Through the European session, trade in the Australian Dollar became more muted. Meanwhile, the Pound (GBP) was also subdued as traders refrained from placing aggressive bets ahead of the Bank of England (BoE) interest rate decision tomorrow.
Markets expect the bank to hike rates by 50bps, a move which could lend Sterling some support. However, there are expectations that the British central bank may signal that a pause in its tightening cycle is imminent. If so, GBP exchange rates could slump.
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Pound Australian Dollar (GBP/AUD) Exchange Rate Slips amid Improving Mood and UK Concerns
The Pound Australian Dollar (GBP/AUD) exchange rate is extending its downside this morning as a risk-on mood supports the ‘Aussie’ and worries about the UK economy weigh on Sterling.
At the time of writing, GBP/AUD is trading at around AU$1.7408, having slipped a quarter of a percent from this morning’s opening levels.
Australian Dollar (AUD) Firms amid Risk-On Trade
The Australian Dollar (AUD) climbed overnight thanks to an improving market mood and some positive Australian economic data.
The country’s finalised manufacturing PMI printed higher than preliminary forecasts overnight. Rather than dropping to 49.8, which signifies a contraction, the PMI came in at 50. AUD investors were cheered that Australia’s factory activity didn’t contract last month, although the survey does show that activity stalled, which limited AUD’s gains.
Fortunately for the ‘Aussie’, there were other tailwinds for the currency. A cheery market mood increased the risky Australian Dollar’s appeal. Equity markets were up during the overnight session, perhaps buoyed by hopes of a dovish tilt from the Federal Reserve this evening.
The bullish tone has carried through into today’s European session, keeping the ‘Aussie’ well bid against the Pound (GBP).
Pound (GBP) Dented by Fresh Industrial Action
Meanwhile, Sterling is struggling to find support as GBP investors remain concerned about the state of the UK economy.
Earlier this week, the International Monetary Fund (IMF) downgraded its forecasts for the UK economy, predicting a recession this year, and this continues to hang over the Pound.
Furthermore, the UK faces widespread disruption today amid ‘Walkout Wednesday’. Almost half a million workers will go on strike, with teachers, civil servants, Border Force staff and train drivers all downing tools to protest real-terms pay cuts.
Industrial action has caused significant disruption and damage to the UK economy in recent months, as a bitter dispute between the government and unions representing public sector workers continues.
Today’s mass strikes are compounding fears about the UK’s ailing economy.
GBP/AUD Exchange Rate Forecast: Domestic News and Fed Decision to Drive Movement
As today’s European session unfolds, Sterling will likely continue to trade on domestic news. Any fresh headlines about the multiple headwinds hitting the UK economy could prompt further losses for the Pound.
However, movement may be limited ahead of the Bank of England (BoE) interest rate decision tomorrow. Amid speculation that the bank could hike by 50bps while also signalling a slowdown in future rate rises, GBP traders may be hesitant today.
As for the Australian Dollar, risk appetite may remain the driving factor.
Tonight could bring some volatility thanks to the Federal Reserve interest rate decision. The Fed is likely to raise rates by 25bps. However, markets and economists seem to have differing opinions on how hawkish the forward guidance will be.
If Fed Chair Jerome Powell signals that the US central bank will continue hiking to bring down inflation, a risk-off mood could sweep markets and thereby dent the ‘Aussie’ Dollar.