Pound Australian Dollar (GBP/AUD) Exchange Rate Plunges on Dovish BoE

Pound Australian Dollar (GBP/AUD) Slumps as BoE Signals End of Tightening Cycle

(Updated 17:00, 6/9/23)

The Pound Australian Dollar (GBP/AUD) exchange rate is nosediving this afternoon as Bank of England (BoE) Governor Andrew Bailey addressed questions from the Treasury Select Committee. Commenting that inflationary pressures have peaked, he also said that interest rate hikes may not need to rise further, sending Sterling plummeting.

At time of writing, the GBP/AUD exchange rate is around $1.9583, a 0.69% plummet from the morning’s opening levels.

Original article continues below…

GBP/AUD Softens as Australian GDP Growth Surprises

The Pound Australian Dollar exchange rate is slipping as stronger-than-expected Australian economic growth was compounded by mounting UK economic fears.

At time of writing, the GBP/AUD exchange rate is around $1.9675, a 0.23% drop from the morning’s opening levels.

Australian Dollar (AUD) Buoyed by Strong Economic Growth

The Australian Dollar (AUD) is finding modest success against its this morning in the wake of better-than-expected economic growth.

Data published by the Australian Bureau of Statistics (ABS) showed that the Australian economy grew 0.4% in Q2. GDP growth came in above market forecasts of a 0.3% rise. Recording a seventh straight period of growth, AUD investors were buoyed on the resilience of the Australian economy.

The economy was boosted by an influx of tourists and foreign students, offsetting softening household consumption. The number of international students has now returned back to pre-Covid figures, bolstering the economy further. Sean Langcake, Head of Macroeconomic Forecasting for Oxford Economics Australia, commented on the latest data:

‘Services export volumes increased by a remarkable 12.1%, buoyed by increased student and tourist flows. This should ensure GDP growth will be positive in Q2, despite the growing headwinds to domestic demand.’

Pound (GBP) Quiet as Economy Teeters on Edge of Recession

Meanwhile, the Pound (GBP) is struggling to find meaningful support as mounting concerns over the fragility of the UK economy is weighing heavy.

The British Chambers of Commerce (BCC) warned this morning that the UK economy will flatline for the next six months but will feel like a recession for most. Furthermore, economic activity in the UK will remain very weak for the next two years. Despite avoiding a technical recession, the BCC expects the next two quarters to flatline amid soaring inflation and elevated interest rates. The BCC added:

‘Consistently low economic growth of this nature is comparable to previous periods of economic shocks and recessions such as the oil crises of the 1970s and financial crash of 2008.’

The BCC also predicts that inflation will eventually drop to 5% by the end of the year. However, the 2% target rate from the Bank of England (BoE) won’t be reached until the final quarter of 2025. Vicky Pryce, senior member of the BCC Economic Advisory Council, commented:

‘The BCC’s latest forecast shows the UK economy is continuing to teeter on the edge of a recession. But the fact is, that with growth predicted to hover so close to zero for three years, it will still feel a lot like one for most people and businesses.

‘The impact this will have on consumer spending, coupled with a poor trade performance, will only generate more uncertainty for firms.’

Pound Australian Dollar Exchange Rate Forecast: Dovish RBA Speech to Sour the Aussie?

Looking ahead, the Pound Australian Dollar exchange rate could see further movement with a speech from outgoing Reserve Bank of Australia (RBA) Governor Philip Lowe. After the central bank held interest rates steady for a third month, the markets are now expecting the RBA’s tightening cycle to be over. If Lowe was to confirm these suspicions, the ‘Aussie’ could slip.

Meanwhile, a thin trading calendar will leave Sterling exposed to market sentiment and ongoing fears over the economy. The Pound could struggle for support amid a cloud of economic uncertainty.

Danny Tingle

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