Pound Australian Dollar (GBP/AUD) Exchange Rate Firms amid Diminished Risk Appetite
The Pound Australian Dollar (GBP/AUD) exchange rate is firming this morning, amid muted levels of risk appetite.
At the time of writing, GBP/AUD is trading at around AU$1.9660, rising by just under 0.2% from the morning’s opening rates.
Pound (GBP) Undermined by Bleak Economic Outlook
The Pound (GBP) is struggling to attract support this morning, as yesterday’s dismal private sector data continues to weigh on GBP.
With the UK economy stumbling closer to a recession, investors have begun to consider the likelihood of further interest rate hikes.
According to a new poll by Reuters, markets now expect the Bank of England (BoE) to have one more hike left in the tank. As such, the peak rate is expected to be 5.5%, down from July’s predictions of 5.75%.
James Smith, Developed Markets Economist at ING, commented:
‘The August meeting began to lay the ground for a pause. I think the fact the Bank is now finally admitting policy is restrictive that it is now a turning process to convince markets rates are going to stay high for quite some time. It comes down to the data. Ideally they would like to stop hiking given rates are restrictive.’
Elsewhere, a muted market mood is likely yielding further headwinds for Sterling, owing to its increasingly risk-sensitive nature.
Australian Dollar (AUD) Stumbles amid Growing Chinese Economic Concerns
The Australian Dollar (AUD) is losing momentum this morning as continued concerns about China’s economic outlook sap sentiment towards AUD.
As a Chinese proxy currency, the superpower’s sputtering post-Covid recovery has been a particularly thorny issue.
Per an analysis written by Reuters, investors appear to be losing patience with the Chinese government. The perception is that recent measures to boost the economy are incoherent, or even stingy.
Seema Shah, Chief Global Strategist at Principal Global Investors, commented:
‘At this point there is confusion and, as long as there is confusion, then there’s lack of credibility and that means investors are more likely to stay away. The only way out is to step up fiscal stimulus … because there is a lack of confidence, rate cuts are not doing enough to boost credit demand.’
While the Politburo has promised support for the property sector and wider economy, it may be too little too late.
Elsewhere, as the markets turn jittery ahead of the Jackson Hole symposium.
The tepid market mood is weighing on the risk-sensitive ‘Aussie’ as investors await keynotes from central banks across the world.
Pound Australian Dollar Exchange Rate Forecast: Risk Appetite in Focus
Looking ahead for the Pound, the data calendar is light through to the end of the week. Because of this, Sterling may be left vulnerable to shifts in the market mood.
As an increasingly risk-sensitive currency, a shift to bearish trade could weigh on Sterling. This shift may occur on Friday, when Federal Reserve Chair Jerome Powell is scheduled to speak.
In his speech, Powell could indicate room for additional tightening, which may sour the market mood as it could damage global growth prospects.
This goes doubly so for the Australian Dollar, which is a more volatile currency. However, if the market mood improves, the ‘Aussie’ could rally.