Pound Australian Dollar (GBP/AUD) Exchange Rate Regains Lost Ground amid BoE Comments

Pound Australian Dollar (GBP/AUD) Exchange Rate Rebounds on BoE Speculation

(Updated 16:05, 18/05/23) The Pound Australian Dollar (GBP/AUD) exchange rate bounced back today, almost hitting a fresh two-week high, as markets bet on more Bank of England (BoE) interest rate rises.

Speaking in front of the Parliamentary Treasury Committee, BoE Governor Andrew Bailey and Deputy Governors Ben Broadbent and Dave Ramsden indicated that the bank may continue to raise interest rates due to the ‘second-round effects’ of inflation. Strong wage growth has led to stickier inflation, as companies hike prices to increase employee income without losing out on profits.

UK government bond yields – which often indicate rate hike bets – rose steadily through the session. The yield on the 10-year Gilt hit a seven-month high.

At the time of writing, GBP/AUD is trading at AU$1.8766, up from an earlier low of AU$1.8707.

Original article continues below:

Pound Australian Dollar (GBP/AUD) Exchange Rate Fluctuates on Jobs Data and Upbeat Mood

The Pound Australian Dollar (GBP/AUD) exchange rate touched a two-week high overnight before shedding these gains and trading in a narrow range.

At the time of writing, GBP/AUD is trading at AU$1.8748, having dropped from a high of AU$1.8820 hit overnight.

Australian Dollar (AUD) Rebounds from Two-Week Low

After initially ticking higher in overnight trade, the Australian Dollar (AUD) faced a sudden slump following new employment data.

Australia’s latest jobless rate showed a surprise jump in unemployment, rising from 3.5% to 3.7%.

The rise came despite a slight drop in the participation rate, as more people exited the workforce. A decline in participation often leads to a decline in unemployment, as those who leave the workforce are not counted as unemployed.

The data suggests that the Australian labour market is cooling as the impact of higher interest rates stifles the country’s economy. As a result, markets scaled back their expectations for more hikes from the Reserve Bank of Australia (RBA), thereby triggering the drop in AUD.

However, the ‘Aussie’ was able to bounce back after seemingly entering oversold conditions.

A bullish market mood also helped the risk-sensitive currency, with risk-hungry traders favouring AUD over its safer rivals.

Markets are increasingly hopeful that the US debt ceiling deadlock will be broken. Yesterday, US President Joe Biden and Republican House Speaker Kevin McCarthy sounded close to reaching an agreement to avoid a ‘catastrophic’ US debt default. These hopes are cheering investors today.

Pound (GBP) Underpinned by BoE Bets

Meanwhile, the Pound (GBP) is subdued against the ‘Aussie’ as a lack of UK economic data leaves the pair to trade on risk appetite.

Bets on another Bank of England (BoE) interest rate rise may be preventing losses for the Pound, despite the upbeat mood. Yesterday, BoE Governor Andrew Bailey indicated that second-round inflation effects could pressure the BoE to continue tightening monetary policy.

This seems to have provided Sterling with modest support into today’s session. UK government bond yields – often an indicator of rate hike bets – are rising.

GBP/AUD Exchange Rate Forecast: Risk Sentiment to Drive the Pair

Looking ahead, risk appetite is likely to drive most movement in the GBP/AUD exchange rate. If the current bullish tone continues, the ‘Aussie’ could start to climb against the Pound.

Events in the US could potentially impact the market mood later on. New US employment data and speeches from three Federal Reserve officials may see traders adjust their expectations for US interest rate rises. Any indications that the Fed will raise borrowing costs again could sour the market mood, potentially denting AUD.

News about the US debt ceiling could also affect risk appetite. Any further indications that a deal is within reach could keep risk appetite alive.

Samuel Birnie

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