Pound Australian Dollar (GBP/AUD) Softens amid Weakening UK Economic Outlook
(Updated 3/8/23, 16:45)
The Pound Australian Dollar (GBP/AUD) exchange rate is recouping some of its earlier losses after the Bank of England (BoE) raised the interest rates by 25bps to a fresh 15-year high of 5.25%. Despite meeting expectations of a quarter-point hike, concerns linger over the economic outlook for the UK. With inflation still four times the target level of 2%, many economists believe the BoE are ‘tightening the screws too much’. Carsten Jung, Senior Economist at IPPR, warns that rates are already too high:
‘The UK economy is weakening. The labour market is slowing down, and productivity is falling. Increasingly there is a realisation that the Bank of England is already overdoing it.’
At time of writing, the GBP/AUD exchange rate is around $1.9395, a 0.25% drop from this morning’s opening levels.
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GBP/AUD Sinks as Interest Rates Hit Fresh 15-Year High
(Updated 3/8/23, 12:15)
The Pound Australian Dollar exchange rate is tumbling as the BoE met expectations and raised the interest rates to 5.25%, the highest since 2008. A 14th consecutive raise is failing to buoy investors as the UK’s economic recovery is slowing amid stubbornly-high inflation and soaring borrowing costs.
At time of writing, the GBP/AUD exchange rate is around $1.9349, a half percent plummet from this morning’s opening levels.
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GBP/AUD Wavers as Investors Brace for 14th Straight Hike
The Pound Australian Dollar exchange rate is rangebound as the market braces for the BoE interest rate decision.
At time of writing, the GBP/AUD exchange rate is around $1.9429, relatively unchanged from this morning’s opening levels.
Pound (GBP) Subdued as Interest Rates Set to Hit 15-Year High
The Pound (GBP) is trading fairly listlessly this morning as investors have moved to the sidelines in anticipation for the interest rate decision at midday. A 14th consecutive hike is firmly priced in, but the question remains over the size.
Economists are split over whether the central bank will opt for a 50 or 25bps rate hike. Despite inflation remaining far above the target rate of 2%, concerns linger over the economic fragility in the UK. It is widely expected the BoE will opt for a quarter-point hike, which would bring the cash rate to a fresh 15-year high of 5.25%.
But with inflation softening, a stubbornly tight labour market, and a worsening economic outlook, the BoE is in a tough spot. Kim Crawford, Global Rates Portfolio Manager at JP Morgan, expects a 25bps rate hike, but warns that it won’t be the last increase:
‘There has been some relief that inflation hasn’t gotten worse, but there is still a lot of progress that needs to be made. The level of wage growth and services inflation is still high, and the labour market remains tight.’
Australian Dollar (AUD) Undermined by Downbeat Data
Meanwhile, the Australian Dollar (AUD) is remaining under pressure from a downbeat market mood. Furthermore, the service sector fell into contraction territory for the first time in four months and posted the weakest reading this year. Elsewhere, retail sales met predictions and slipped 0.8% MoM in June, as cost-of-living pressures weighed on consumer spending.
However, stronger-than-expected services PMI in China helped offset some of the gloom. Against expectations of another fall after the five-month low from June’s 53.9, the service sector unexpectedly rose to 54.1. The figure pointed to a seventh consecutive month of expanding activity. New orders accelerated and a rise in job creation being the biggest drivers. However, business sentiment also slipped in the world’s second-largest economy. Concerns over stuttering global economic growth saw an eight-month low.
Pound Australian Dollar Exchange Rate Forecast: Hawkish BoE to Bolster Sterling?
Looking ahead, the Pound Australian Dollar exchange rate could see fluctuations later today with the interest rate decision. With a hike all but priced in, attention will be on the size and the forward guidance. With BoE Governor Andrew Bailey addressing the media after, is he hints at further tightening, Sterling could climb higher.
Meanwhile, the Australian Dollar could see movement overnight with the release of the Reserve Bank of Australia (RBA) Statement on Monetary Policy. The RBA surprised the markets with a pause in the interest rates last week. And any clues as to the next move from the RBA could inspire movement.