Pound Australian Dollar (GBP/AUD) Exchange Rate Bolstered by Elevated BoE Rate Hike Bets

Pound Australian Dollar (GBP/AUD) Rallies on Expectations of Further BoE Tightening

(Updated 9/5/23, 17:00)

The Pound Australian Dollar (GBP/AUD) exchange rate is strengthening further as the door appears open to allow further tightening from the Bank of England (BoE). Growing expectation that the central bank will continue its monetary policy beyond Thursday’s meeting could be supporting the Pound (GBP).

An increasingly risk-averse market mood could also be weighing heavily on the risk-sensitive Australian Dollar (AUD).

At time of writing, the GBP/AUD exchange rate is around $1.8664, a 0.44% climb from this morning’s opening levels.

Original article continues below…

GBP/AUD Firms on Stronger-than-Expected Retail Figures

The Pound Australian Dollar exchange rate strengthens modestly as the British Retail Consortium (BRC) revealed retail sales increased on a yearly basis but highlighted lingering inflationary pressures.

At time of writing, the GBP/AUD exchange rate is around $1.8664, a 0.34% climb from this morning’s opening levels.

Pound (GBP) Supported by Strong Retail Sales

The Pound is enjoying moderate success against many of its peers this morning in the wake of accelerating sales growth compared to a year ago. BRC revealed sales figures improved by 5.2% on a yearly basis in April.

Against expectations of slowing growth, sales on a like-for-like basis in April compared to last year, increased by 5.2%. However, with inflation remaining sky high, consumers are getting less for their money. Helen Dickinson, Chief Executive at BRC, commented on the latest data:

‘While retail sales grew in April, overall inflation meant volumes were down for both food and non-food as customers continued to adjust spending habits. Clothing sales underperformed as the poor weather left customers thinking twice before decking out their summer wardrobe.’

Further buoying Sterling are elevated rate hike expectations from the BoE. Goldman Sachs believes that the BoE may have to continue to raise interest rates to 5% by summer. With inflationary pressures remaining, and inflation holding five times higher than the central bank’s target rate of 2%, the BoE might be left with little choice but to continue tightening. Goldman Sachs economist Ibrahim Quadri said:

‘While it is possible that the monetary policy committee might want to slow the hiking to a quarterly pace after the May meeting, we remain sceptical that this will be feasible amid ongoing inflationary pressures.

‘We therefore expect the monetary policy committee to continue to hike in 25 basis point steps until reaching a terminal rate of 5% in August.’

Australian Dollar (AUD) Undermined by Tumbling Chinese Imports

Meanwhile, the Australian Dollar is struggling for demand as Chinese data fuels concerns over global economic growth. A surprise drop in imports has highlighted the stuttering economic rebound in the world’s second largest economy.

Imports in China unexpectedly fell by 7.9% YoY in April, revealing mixed signals over its ongoing economic recovery after the country’s strict Covid measures were relaxed. The drop follows a 1.4% fall from last month, raising questions over slipping demand. Iris Pang, ING’s Chief Economist for Greater China, said of the latest data:

‘It seems increasingly clear that the global economic slowdown is weighing on China’s exports.’

Further weighing on the ‘Aussie’ is a worse-than-expected fall in quarterly retail sales. Against an expected 0.4% decline, sales contracted by 0.6% in Q1 of 2023. However, on a monthly basis, sales increased by 0.4% in March. This marked the third straight increase in retail sales, with significant improvement in sales for cafes and restaurants.

Pound Australian Dollar Exchange Rate Forecast: Falling Australian Consumer Confidence to Dent the Aussie?

Looking ahead, the Pound Australian Dollar exchange rate could see further movement with the release of the Westpac consumer confidence index. After climbing to a 10-month high in April, economists are predicting a slide as consumer confidence remains relatively weak.

Meanwhile, GBP investors will be turning their attention to the interest rate decision on Thursday. A hawkish forward guidance could boost Sterling as inflation remains sticky.

Danny Tingle

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