Pound Australian Dollar Exchange Rate Firms Despite Circumspect Outlook from BoE
The Pound Australian Dollar (GBP/AUD) exchange rate is climbing this morning after trading erratically as investors continue to digest the interest rate decision from the Bank of England (BoE). Hopes of a milder and shallower UK recession could be buoying investors’ spirits.
At time of writing the GBP/AUD exchange rate is trading around $1.7338, a 0.33% climb from this morning’s opening levels.
Pound (GBP) Lifted Despite Cautious BoE Outlook
The Pound is gathering strength this morning after plummeting in the wake of the interest rate decision from the BoE. Despite an expected 25bps hike being met, a dovish statement from the central bank weighed on investors.
BoE Governor Andrew Bailey struck a more cautious and dovish tone in his press conference that followed the decision. The possibility of the central bank turning to smaller rate increases or even pausing them caused a sell-off for the Pound.
However, lending some modest support for Sterling is optimism surrounding the inevitable recession. Against earlier warnings, the BoE expects the recession to be much milder and shallower. Whilst it may make for good news for the UK economy, tempered rate hike expectations dented investors’ moods.
Capping any gains was the final printing of services PMI. Highlighting the worst month in two years, the cost-of-living crisis saw businesses and consumers cut back on spending. The PMI fell from 49.9 in December to 48.7 in January, the fastest decline in the sector since January 2021.
Australian Dollar (AUD) Undermined by Cautious Market Mood
Meanwhile, the Australian Dollar remains fairly subdued this morning amid a risk-off mood. Despite better-than-expected performance out of China, the ‘Aussie’ is finding it difficult to muster much strength.
Services PMI recorded its first growth in the sector in five months as the world’s second largest economy bounces back. Sentiment in the service sector also jumped to its highest level in 12 years, buoyed by the optimism surrounding the loosening of Covid restrictions.
Pound Australian Dollar Forecast: BoE Speech to Sour the Pound?
Looking ahead, the Pound Australian Dollar exchange rate could see further movement with a speech from BoE Chief Economist Huw Pill. Concerns of the central bank doing too much monetary tightening to battle inflation is a concern raised by Pill. If a similar tone is struck, Sterling could slide further on pared rate hike expectations.
Meanwhile, risk sentiment will be the biggest driver for the Australian Dollar to close the week. Downbeat retail sales could weigh on the ‘Aussie’ on Monday amid an expected -0.6% fall.