The Pound Australian Dollar (GBP/AUD) exchange rate weakened throughout the week as the Bank of England (BoE) delivered a dovish outlook along with a 50bps rate hike.
What’s Been Happening: GBP/AUD Exchange Rate Slipped on Dovish BoE Outlook
The Pound (GBP) opened the week in choppy waters as a lack of economic data left it exposed to further downbeat economic forecasts. The International Monetary Fund (IMF) warned that the UK will be the only G7 nation to suffer a declining GDP in 2023.
The BoE met expectations and raised the interest rates to their highest rate in 14 years. However, a dovish outlook poured cold water on hopes of further hikes, with the possibility of a pause in the tightening cycle.
Meanwhile, the Australian Dollar got off to a rocky start as a cautious market mood dictated the play. With investors bracing for a volatile week of interest rate decision, the ‘Aussie’ struggled for demand.
A bigger-than-expected slump in retail sales didn’t inspire much confidence as sales fell by 3.6% against an expected 0.3% drop. However, an upward revision of final manufacturing PMI limited AUD losses.
End of the week and despite strong PMI data from both China and Australia, the cautious market mood weighed on the ‘Aussie’. Persistently high price pressures and increased rate hike bets from the Federal Reserve kept the Australian Dollar under pressure.
Three Things to Watch Out for This Week
- RBA Interest Rate Decision
The Reserve Bank of Australia (RBA) is expected to raise interest rates by 25bps, but investors will be looking towards any hints towards future monetary policy.
- UK GDP Growth Rate
An expected stagnation in QoQ growth could see Sterling slip, highlighting two consecutive quarters of avoiding expansion.
- UK Political Volatility
Relentless industrial action and political chaos could drag Sterling lower as general election rumblings continue to spook investors.
Pound Australian Dollar Forecast
Elsewhere, geopolitical tensions could continue to weigh on market sentiment, and in turn the risk-sensitive ‘Aussie’. With US-China tensions rising, and the Ukraine conflict raging on, market moods could sour.