Pound Australian Dollar (GBP/AUD) Exchange Rate Trades on US Inflation Data

Pound Australian Dollar (GBP/AUD) Exchange Rate Dips as US Data Misses Forecast

The Pound Australian Dollar (GBP/AUD) exchange rate traded in a narrow range this morning, before plunging then swiftly recovering as US inflation data was released. As the US has the world’s largest economy, the release sparked widespread volatility across the majority of exchange rates.

At the time of writing, GBP/AUD is trading at A$1.8652, having trended marginally lower in the past 24 hours.

Australian Dollar (AUD) Enjoys Sharp Uptick on Inflation Release

The Australian Dollar (AUD) jumped against the Pound (GBP) and the majority of its other trading partners today, inspired by a sharp downtrend in the US Dollar (USD).

A disappointing inflation release from the US limits the chances of the Federal Reserve bank tightening monetary policy at its next interest rate meeting, increasing policy divergence between global central banks. Non-US currencies benefit from the divergence as it places the Fed’s counterparts in a comparatively hawkish position.

Before the publication of the US data, the ‘Aussie’ traded with modest losses against GBP, as a risk-off tone in the markets contributed toward bearish sentiment. A lack of data from Australia and its close trading partners left the currency exposed to risk sentiment initially.

At the time of writing, GBP/AUD has recouped some of its losses, but the Australian Dollar remains supported. Economists warn, however, that turmoil in the US banking sector could spell trouble for the global economy; which would weigh heavy upon the risk-sensitive AUD. The negative correlation between USD and the ‘Aussie’ may soon be overridden by market jitters.

Mike Zigmont, head of trading at Harvest Volatility Management commented: ‘The debt ceiling issue is a very serious one, but the markets are not reacting yet, and I stress yet… If the political brinkmanship gets too dicey, markets are going to freak out. If the US actually defaults, look out below.’

Pound (GBP) Buoyed by BoE Expectations

The Pound climbed against the Australian Dollar initially this morning, as investor sentiment was boosted by bullish expectations for the Bank of England (BoE)’s next interest rate decision.

Policymakers are forecast to hike interest rates by 25bps tomorrow; although expectations are fully priced in, trader optimism continues to extend tailwinds. As per Reuters, Sterling hit a 5-month high against the Euro (EUR) today, having rallied around 22% since September last year.

On the other hand, various economists warn that the UK’s economic outlook is far from certain. Analysts at CNBC remark that projections for the BoE past tomorrow’s decision begin to diverge, making it difficult to speculate accurately how the Pound will be performing weeks from now.

Ellie Henderson, from Investec Economics, observes: ‘What is clear is that the days of successive interest rate hikes in this economic cycle are limited, but the exact endpoint is clouded with uncertainties.’

Tomorrow’s report from the BoE’s Monetary Policy Committee (MPC) is likely to provide some guidance, helping to direct Pound exchange rates. Following this, the UK’s GDP release on Friday will supply further trading stimulus, with slowing annualised growth and stagnation on a monthly basis likely to dampen Sterling sentiment.

GBP/AUD Exchange Rate Forecast: Bank of England to Set the Tone

Tomorrow’s interest rate decision will be the key data release inspiring movement in the Pound Australian Dollar exchange rate, with hawkish comments from the UK’s central bank likely to boost GBP/AUD.

Dovish feedback may be more likely, however, as economists predict turmoil ahead: the UK is tipped to be the worst-performing major economy over the next two years as persistent inflation continues to limit economic activity. If the MPC strikes a downbeat tone, the Pound may tumble against the ‘Aussie’ as well as its other peers.

Olivia Evershed

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