Pound Australian Dollar (GBP/AUD) Exchange Rate Climbs amid BoE Hike and Risk-Off Mood
(Updated 17:10, 22/06/23) The Pound Australian Dollar (GBP/AUD) exchange rate eventually found its footing today, having faced volatility in the wake of the Bank of England (BoE) interest rate decision.
The BoE raised rates by 50bps – a hawkish surprise that lent the Pound (GBP) support. However, investors were worried that the BoE may trigger a recession by tightening policy. This sparked volatility in GBP exchange rates, but eventually the Pound rose.
Meanwhile, a decidedly bearish market mood kept pressure on the risk-sensitive Australian Dollar (AUD).
At the time of writing, GBP/AUD was trading at around AU$1.8879, up 0.5% on the day.
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Pound Australian Dollar (GBP/AUD) Exchange Rate Rocked by 50bps Rate Rise
(Updated 12:45, 22/6/23) The Pound Australian Dollar (GBP/AUD) exchange rate witnessed notable volatility in the wake of the Bank of England (BoE) interest rate decision. The pairing initially spiked, then slumped, then bounced back as the British central bank hiked rates by 50bps.
This is the 13th consecutive increase, bringing Bank Rate to its highest level since the 2008 financial crisis. It also represents a shift up in gear, after the bank recently moved to smaller hikes of 25bps.
The BoE also indicated that further rate increases may be necessary as the risk of persistent inflation has grown more established. The accompanying policy statement reads:
‘If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required…
‘the risks around this inflation projection were skewed significantly to the upside, reflecting the potential for more persistent strength in domestic price and wage setting.’
While such a hawkish decision would usually boost the Pound (GBP), the latest decision exacerbates fears that the BoE may hike the UK into a recession.
Union leaders have criticised the move, arguing that it will make the cost-of-living crisis worse for workers and homeowners.
Meanwhile, Luke Bartholomew, Senior Economist at global investment firm abrdn, said:
‘It is increasingly difficult to see how the UK avoids a recession as part of the process of bringing inflation down. And today’s large rate increase will probably be seen in retrospect as an important milestone towards that recession.’
Recession and cost-of-living woes seem to be capping Sterling’s gains.
At the time of writing, GBP/AUD is trading at AU$1.8852. This is up almost 0.4% on the day and marginally higher than it was before the BoE decision was announced.
Original article continues below:
Pound Australian Dollar (GBP/AUD) Exchange Rate Ticks Up Ahead of BoE Decision
The Pound Australian Dollar (GBP/AUD) exchange rate has seen some volatility today, trending slightly higher overall, as markets brace for the Bank of England’s (BoE) interest rate decision at noon.
At the time of writing, GBP/AUD is trading at around AU$1.8821, having fluctuated between lows of AU$1.8761 and highs of AU$1.8873.
Pound (GBP) Makes Modest Gains as BoE Set to Raise Rates
The Pound (GBP) has found modest support this morning, following yesterday’s slump, as traders prepare for an expected hawkish decision from the BoE.
Yesterday, UK inflation far exceeded forecasts, with core inflation unexpectedly rising to a fresh 31-year high of 7.1%. This boosted bets on a larger 50bps interest rate rise from the BoE at today’s meeting. However, fears that the bank would need to hike the UK economy into a self-inflicted recession saw GBP exchange rates stumble.
Today, the Pound is regaining some ground as the likelihood of a hawkish move from the BoE finally prompts some interest in the currency.
A 25bps rise is fully priced in, but there is the distinct possibility that policymakers opt for a more muscular move to quash an emerging wage-price spiral from further driving up inflation.
Even if the bank decides to enact a more modest quarter-point rise, they’re likely to signal further tightening in the coming months.
This is lifting GBP exchange rates today. However, angst over the longer-term economic outlook is capping the upside.
Australian Dollar (AUD) Slides as Risk Aversion Prevails
Meanwhile, the risk-sensitive Australian Dollar (AUD) is struggling to attract support amid wider anxiety in markets.
While UK price pressures are particularly sticky compared to other economies, many central banks around the world are raising borrowing costs to bring down inflation.
This, paired with a general trend of weaker manufacturing activity in many countries, is stoking fears about the health of the global economy.
As a result, anxious investors are shunning the riskier ‘Aussie’ in favour of safer assets.
GBP/AUD Exchange Rate Forecast: BoE Decision to Drive Volatility
Looking ahead, the Bank of England interest rate decision is in the spotlight. It’s likely to drive some volatility in the GBP/AUD exchange rate.
If the BoE does opt for a larger half-point hike, we could see Sterling strengthen. However, fears that the bank will trigger a recession by tightening monetary policy further could severely cap the Pound’s gains.
Likewise, if officials at the bank express concern about the UK’s economic outlook and the impact of stubbornly high inflation, GBP could face headwinds.
If the BoE decides instead to raise rates by 25bps then it may disappoint GBP bulls. This could put some pressure on the UK currency.
Meanwhile, risk appetite is likely to continue to influence the GBP/AUD pairing. If the prevailing risk-off mood persists, the safer Pound could find support against the riskier ‘Aussie’.