The Pound Australian Dollar (GBP/AUD) exchange rate surged last week amid a souring market mood and elevated Bank of England (BoE) interest rate bets.
What’s Been Happening: GBP/AUD Exchange Rate Rallies on BoE Rate Speculation
The Pound (GBP) started last week on the back foot in response to disappointing domestic PMIs.
However, Sterling began to gather momentum in mid-week trade thanks to BoE interest rate hike expectations. GBP investors remained confident that the BoE will deliver a couple more hikes this year, despite signs the Federal Reserve and European Central Bank (ECB) may have reached the end of their hiking cycles.
The Pound closed the week in volatile conditions amid a mixed market mood as the latest CBI Distributive Trades survey suggested retail sales fell at the fastest pace since April 2022.
Meanwhile, the Australian Dollar (AUD) opened strongly as prospects of further economic stimulus from China buoyed markets. However, inflation in Australia cooled faster than expected, diminishing rate hike bets from the Reserve bank of Australia (RBA).
Pressure continued to build on the ‘Aussie’ as both PPI and retail sales missed forecasts. An unexpected slump in retail sales highlighted the cost-of-living pressures weighing on consumer demand.
Furthermore, strong US data bolstered the US Dollar (USD) and dampened market sentiment. The risk-sensitive ‘Aussie’ subsequently plummeted amid a souring market mood.
Three Things to Watch Out for This Week
- BoE Interest Rate Decision
A 25bps hike is all but baked in, but the focus will be on the central bank’s forward guidance. A hawkish tone could bolster Sterling on further tightening expectations.
- RBA Interest Rate Decision
Meanwhile, a more dovish RBA could see the ‘Aussie’ slide further. Another quarter-point hike could do little if the central bank maintains its position of waiting to assess the impacts of previous rate hikes.
- UK PMIs
Final readings for both services and manufacturing could confirm that the economy is close to stalling, and the Pound could stutter.
Pound Australian Dollar Forecast
Elsewhere, market sentiment could continue to be a major driver. With fears of global slowdown continuing to linger, the riskier Australian Dollar could continue to face pressure.