The Pound Australian Dollar (GBP/AUD) exchange rate rallied last week as elevated rate hike expectations from the Bank of England (BoE) offset fears of a recession.
What’s Been Happening: GBP/AUD Exchange Rate Soared on Expectations of Another 50bps Hike
The Pound (GBP) found moderate success against many of its peers last week despite a lack of major economic data.
Despite the threat of a looming recession, GBP investors were buoyed at the prospect of the BoE delivering another 50bps rate hike next month.
Providing some modest support to Sterling was the welcome news that food inflation had finally appeared to have peaked. With the cost-of-living crisis weighing heavily on consumer spending, and the wider economy, easing pressures could finally lessen the squeeze.
Meanwhile, the Australian Dollar (AUD) encountered pressure to open the week. The Reserve Bank of Australia (RBA) shocked markets by opting to keep interest rates unchanged. However, the RBA’s hawkish forward guidance helped capped these losses.
The ‘Aussie’ then fluctuated in the second half of the week amid a mixed market mood. AUD exchange rates weakened on Thursday, before rallying at the end of the week as a pullback in the US Dollar (USD) revived risk appetite.
Three Things to Watch Out for This Week
- UK Labour Market Data
Hot wage growth figures and low unemployment could bolster rate hike expectations and push Sterling higher this week.
- UK GDP Growth
In contrast, a sharp contraction in GDP could weigh on the Pound as growth is expected to fall by 0.4%.
- Global Growth Fears
With borrowing costs continuing to surge worldwide, fears of recessions and slowing growth could weigh on market sentiment, denting the risk-sensitive Australian Dollar.
Pound Australian Dollar Forecast
Elsewhere, a speech from RBA Governor Philip Lowe could provide a welcome boost to the Australian Dollar if he signals the door remains open to more rate hikes in the future.