Pound Australian Dollar (GBP/AUD) Exchange Rate Strengthens amid Risk-Off Trade
The Pound Australian Dollar (GBP/AUD) exchange rate strengthened today, almost reclaiming Wednesday’s one-month high, as risk aversion dented the Australian Dollar (AUD).
At the time of writing, GBP/AUD is trading at AU$1.7728, up 0.6% from its overnight low.
Australian Dollar (AUD) Falls amid Gloomy Mood
The Australian Dollar fell sharply overnight as a souring market mood put significant pressure on the risk-sensitive currency.
Markets turned bearish in overnight trade as economic and geopolitical fears began to make investors anxious.
Economically, there are worries that the Federal Reserve will continue to raise interest rates. This in turn will push up global borrowing costs and could slow the world economy. Weaker-than-expected US GDP data yesterday afternoon may have added to concerns, as if the US – the world’s largest economy – falters, it could ripple out into other economies.
Geopolitically, fears of an escalation in Ukraine and US-China tensions are sapping investors’ appetite for risk. Today is the one-year anniversary of Russia’s illegal invasion, and some analysts say that Moscow is planning a large-scale attack. These worries are pressuring the riskier ‘Aussie’ today.
Pound (GBP) Rises without Clear Catalyst
Meanwhile, the Pound (GBP) is finding some support this morning, regaining its recent losses.
Earlier in the week, Sterling surged higher after the UK’s services PMI smashed forecasts. However, since then it has steadily declined against the ‘Aussie’.
Amid a lack of notable fundamental factors today, it seems as though traders are readjusting their positions ahead of the weekend.
GBP/AUD Exchange Rate Forecast: Dovish BoE Comments to Trim GBP’s Gains?
Looking ahead, domestic UK news could drive the Pound through much of today’s session. Any fresh updates about the Northern Ireland Protocol may elicit movement: hopeful headlines could support Sterling, while worries about a political rebellion may make GBP investors jittery.
Late afternoon, we have a speech from Bank of England (BoE) rate setter Silvana Tenreyro. Tenreyro is one of the more dovish members of the bank’s Monetary Policy Committee (MPC), having voted to leave interest rates unchanged at the last two meetings. Therefore, she is likely to strike a very dovish tone, which may weigh on the Pound.
As for the ‘Aussie’, risk sentiment may be the defining factor through today’s trade. Markets are bracing for the latest US core PCE price index – the Federal Reserve’s preferred measure of inflation – this afternoon. If it indicates that inflation remains sticky, rising Fed rate hike bets could spook markets, which would likely weigh on AUD. However, if the reading prints below forecasts, the Australian Dollar could rally.