GBP/AUD Exchange Rate Selloff Accelerates as Markets Digest Bailey Comments
(Updated 16:20 1/3/2022) The Pound Australian Dollar (GBP/AUD) exchange rate remains on the defensive this afternoon. GBP/AUD has now shed around roughly a cent from today’s opening levels.
The downturn in GBP/AUD is primarily linked to comments made by Bank of England (BoE) Governor Andrew Bailey earlier this morning. Bailey suggested any further rate increases would be data dependent.
His comments have muddied the waters regarding the BoE’s March interest rate decision, with some analysts suggesting they hint UK interest rates may have peaked.
Andrew Bailey's speech challenges markets' view that the MPC will hike by 25bp at each of its next three meetings. He:
– Reminded that the MPC no longer has a presumption of further hikes
– Judged that data are coming in line with its forecasts
– Stated that "nothing is decided" pic.twitter.com/lHZ9silnIF— Samuel Tombs (@samueltombs) March 1, 2023
The Sterling selloff shows no sign of slowing, potentially leaving the Pound Australian Dollar exchange rate vulnerable to slipping below AU$1.77.
Original article continues below:
Pound Australian Dollar Exchange Rate Slides in Risk-On Trade
The Pound Australian Dollar (GBP/AUD) exchange rate is on the defensive this morning as a prevailing risk-on mood disproportionately benefits the ‘Aussie’.
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.7806. Down roughly 0.4% from today’s opening rate.
Australian Dollar (AUD) Firms on Stellar Chinese Data
The Australian Dollar (AUD) trades with modest gains this morning after firming overnight as markets cheered the release of strong Chinese data.
China’s latest manufacturing and services PMIs both printed well above expectations in February. The surge in growth coming as more of the Chinese economy reopened.
The data helped underpin the ‘Aussie’ as strong Chinese activity – particularly in the factory sector – is likely to bolster demand for key Australian exports such as coal and iron ore.
However, the Australian Dollar’s gains remain modest in the face of Australia’s latest GDP figures.
Data published ahead of the Chinese PMIs reported growth in Australia’s economy slowed from 0.7% to 0.5% in the last quarter of 2022. This came as an unpleasant surprise to AUD investors, who had priced in a 0.8% expansion.
The Australian Dollar’s upside potential remains limited today as the weaker-than-expected growth figures stokes speculation the Reserve Bank of Australia (RBA) may be nearing the end of its current hiking cycle.
Diana Mousina, Senior Economist at AMP Capital Markets Ltd, comments:
‘Today’s data to me looks quite soft. So I think we’re getting close to that RBA pause, maybe one more rate hike in March and then I think the risk is that the RBA will pause.’
Expectations for a RBA rate pause are also supported by the publication of Australia’s monthly CPI indicator. The latest release pointed to a dramatic drop in inflation in January.
Pound (GBP) Subdued Following BoE Bailey Comments
The Pound (GBP) is struggling to attract support this morning. A bout of profit taking is dragging on Sterling, while a speech by Bank of England (BoE) Governor Andrew Bailey is doing little to support GBP sentiment.
Speaking this morning Bailey indicated that more interest rate hikes from the BoE may be appropriate. But that nothing its set in stone.
‘I would caution against suggesting either that we are done with increasing bank rate, or that we will inevitably need to do more.
‘We will reach our conclusions with a determined focus on achieving the 2% inflation target on a sustained and lasting basis.’
GBP bulls appear disappointed by Baileys non-committal attitude to further rate hikes. Leaving the Pound to succumb to profit driven trade this morning.
Pound Australian Dollar Forecast: Positive Brexit Headlines to Revive Sterling?
The Pound Australian Dollar (GBP/AUD) exchange rate has the chance to bounce back later in the week if headlines regarding the new Northern Ireland trade arrangement remain positive.
If the so-called ‘Windsor Framework’ is able to win over the Democratic Unionist Party (DUP) it will boost hopes the new deal will make it through the House of Commons with little resistance. It hoped the agreement will help to smooth over UK-EU trade relations and boost UK economic growth.
Meanwhile, in the absence of any notable AUD data, movement in the Australian Dollar is likely to be tied to market risk appetite. Will a cautious mood lead the ‘Aussie’ to relinquish some of its gains?