GBP/AUD Exchange Rate Flat as Sterling Relinquishes Inflation-Linked Gains
(Updated 15:10 22/3/2022) The Pound Australian Dollar (GBP/AUD) exchange rate is trading sideways this afternoon, having shed the bulk of the gains from this morning.
The pullback in GBP/AUD follows a correction in Sterling after February’s above forecast inflation figures triggered a brief buying frenzy.
As cooler heads prevailed GBP investors sought to limit their bullish bets in the Pound ahead of the Bank of England’s (BoE) rate decision tomorrow.
Meanwhile, the Australian Dollar remains suppressed by softening commodity prices and the prevalence of investor caution ahead of the Federal Reserve’s interest rate decision later this evening.
Original article continues below:
Pound Australian Dollar Exchange Rate Rallies on Stronger-than-Expected UK Inflation
The Pound Australian Dollar (GBP/AUD) exchange rate struck a new one-year high this morning. As markets react to the UK’s consumer price index.
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8359. Up roughly 0.3% from today’s opening rate.
Pound (GBP) Strengthens as Strong Inflation Boosts BoE Rate Hike Bets
The Pound (GBP) is rallying this morning, following the publication of stronger-than-expected UK CPI figures.
According to data published by the Office for National Statistics (ONS), UK inflation climbed from 10.1% to 10.4% in February. This smashed forecasts for a decline to 9.9% and reverses a four-month fall in prices.
Annual inflation rates rise again following the easing in Jan 2023:
▪️ Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 9.2% in the 12 months to Feb 2023, up from 8.8% in Jan 2022
▪️ CPI rose by 10.4%, up from 10.1%➡ https://t.co/VVfmybQmsG pic.twitter.com/l1dXAi7yyk
— Office for National Statistics (ONS) (@ONS) March 22, 2023
This uptick was mirrored in core inflation, which unexpectedly climbed from 5.8% to 6.2%.
February’s surprise acceleration in inflation has seen the Pound Australian Dollar exchange rate climb a cent since the start of today’s European session. Sterling’s strength comes as the CPI figures boost expectations for a rate hike from the Bank of England (BoE) tomorrow.
The Pound previously weakened as GBP investors were split on whether the BoE would pursue another rate hike this month following the recent banking sector chaos.
Kitty Ussher, Chief Economist at the Institute of Directors, suggests today’s CPI release tips things in favour of a hike.
‘In recent days some have suggested that the febrile environment in the banking sector should give central banks pause for thought before raising rates further. Today’s data suggests the opposite; the Bank of England’s job is not yet done.’
The BoE will announce its latest interest rate decision on Thursday at 12:00 GMT.
Australian Dollar (AUD) Underpinned by USD Weakness
While it is on the back foot against the Pound, the Australian Dollar (AUD) is ticking higher against the majority of its other peers.
This uptick in the ‘Aussie’ appears driven primarily by the weakness of the US Dollar (USD) as the pullback in USD helps to boost risk appetite.
Investors are reluctant to make any bullish bets on the US Dollar ahead of the Federal Reserve’s interest rate decision later this evening.
The uptick in the Australian Dollar is also supported by increased optimism regarding the banking sector. Shares appear to have stabilised this week after UBS acquired troubled rival Credit Suisse.
Pound Australian Dollar Forecast: BoE Rate Decision in the Spotlight
The conclusion of the BoE’s latest policy meeting will be centre stage on Thursday. The BoE’s latest rate decision could inject fresh volatility into the Pound Australian Dollar (GBP/AUD) exchange rate.
Despite February’s inflation release a rate hike is far from certain. GBP exchange rates are likely to nosedive if the BoE decides to err on the side of caution.
Even if the BoE opts for a 25bps hike this could be undermined if the bank signals this is likely to mark the end of its currency hiking cycle.
Meanwhile the focus for AUD investors in the second half of the week will be Australia’s latest PMI figures.
March’s preliminary figures are forecast to report a modest slowdown in both the manufacturing and services sectors, potentially weakening the appeal of the Australian Dollar.