Pound Australian Dollar (GBP/AUD) Exchange Rate Drops amid Dovish BoE Pivot
(Updated 16:44 02/02/23)
The Pound Australian Dollar (GBP/AUD) exchange rate has trended lower over the course of today. The pairing’s losses are likely being motivated by the Bank of England’s interest rate decision earlier today.
The BoE hiked interest rates by 50bps in a move that had been largely priced in by markets. Alongside the decision, the central bank scaled back its previously hawkish rhetoric and signaled that inflation would fall drastically over the coming year. Analysts took this as a sign that the BoE would be slowing its pace of policy tightening which could be weighing on GBP/AUD.
On the other hand, the central bank outlined a shallower-than-expected recession for the UK in 2023. This may be helping to limit drastic losses for the exchange rate.
Speaking on the decision, James Smith and Antoine Bouvet at ING said:
‘Below-target inflation forecasts, more muted language on future tightening, and a warning about the impact of past rate hikes, all signal that Bank Rate is close to peaking. We expect one further 25bp rate hike in March, though we think a rate cut is unlikely for at least a year.’
At time of writing the GBP/AUD exchange rate was at around AU$1.7296, which was down roughly 0.2% from this morning’s opening figures.
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Pound Australian Dollar (GBP/AUD) Exchange Rate Trends Sideways Ahead of BoE Decision
The Pound Australian Dollar (GBP/AUD) exchange rate is trading in a narrow range today. The pairing is likely seeing muted movement amid a subdued market mood. Investors may also be wary of placing any significant bets ahead of the Bank of England’s (BoE) interest rate decision.
At time of writing the GBP/AUD exchange rate is at around AU$1.7305, which is virtually unchanged from this morning’s opening figures.
Pound (GBP) Slides ahead of Forecast 50bps Rate Hike from BoE
The Pound (GBP) is slipping today. Investors are likely paring back bets on Sterling ahead of the BoE’s interest rate decision later today.
The UK’s central bank is widely expected to hike interest rates by 50bps today, bringing interest rates to their highest point since autumn 2008. The BoE has remained concerned that a wage-price spiral could become embedded in the economy and push inflation higher.
The prospect of a slowdown in future policy tightening from the central bank may be adding to Sterling’s downturn today.
James Smith, Antoine Bouvet, and Chris Turner at ING said:
‘If we get a 50bp hike on Thursday then it’s likely to be the last. BoE officials have hinted previously that much of the impact of last year’s rate hikes is yet to hit, and cracks are forming in interest-rate-sensitive parts of the economy.’
Australian Dollar (AUD) Drops amid Falling Commodity Prices
The Australian Dollar (AUD) is falling today amid a subdued market mood. A downturn in the commodities market may be driving losses for the ‘Aussie’. Coal prices in particular are tumbling today amid the prospect of increased supplies and reduced demand.
A downturn in the latest business confidence figures may also be weighing on AUD today. Business confidence in the fourth quarter of 2022 fell from 9 to -1. Firms cited hiring difficulties and persistent supply chain worries as factors in the drop.
On the other hand, Reserve Bank of Australia (RBA) may be lending support to AUD today. The central bank is expected hike interest rates by at least 25bps. Some analysts are forecasting a larger hike, however.
GBP/AUD Exchange Rate Forecast: Will BoE Hike Rates as Forecast?
Looking ahead, GBP investors will be keenly awaiting the BoE’s interest rate decision later today. Markets have largely priced in the forecast 50bps rate hike, meaning the impact of the decision on Sterling could be minimal.
The central bank’s forward guidance following the decision could prompt more significant movement in the Pound. There is speculation that the BoE could hint at a slowdown in policy tightening at its upcoming meetings. If policymakers signal such a move it could see GBP slump.
On Friday, the final reading of January’s services sector PMI could add to any downturn in Sterling if it prints as forecast. The figures are set to confirm a contraction in the UK’s dominant private sector.
Also on Friday, a speech from BoE chief economist Huw Pill could cause further movement in the Pound. The Pound could fall if Pill hints at a slowdown in policy tightening from the central bank.
For the Australian Dollar, the final reading of January’s service sector PMI could pull the ‘Aussie’ lower overnight. The PMI is expected to confirm a further downturn in the private sector and may dent confidence in the Australian economy.
The latest PMI for China’s services sector could help to limit any downturn for AUD, however. January’s PMI is expected to return to growth for the first time since August 2022.