Pound Australian Dollar (GBP/AUD) Exchange Rate Recedes as BoE Holds Fire

Pound Australian Dollar (GBP/AUD) Exchange Rate Loses Gains as BoE Pauses Tightening Cycle

Article updated 16:10, 21/9/23:

The Pound Australian Dollar (GBP/AUD) exchange rate is trading in narrow boundaries this afternoon, following the Bank of England’s (BoE) decision to pause it’s tightening cycle.

On the back of recent inflation data, the BoE elected to hold fire and appeared to be moving towards a stretch of keeping rates elevated for longer.

The BoE’s accompanying statement read:

‘Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.’

Additionally, a risk-averse market impulse likely brought additional pressure to GBP rates, owing to its increasingly risk-sensitive nature.

At the time of writing, GBP/AUD is trading at around AU$1.9139, showing little movement from the morning’s opening rates.

Pound Australian Dollar (GBP/AUD) Exchange Rate Rises as Investors Eye BoE Decision

The Pound Australian Dollar (GBP/AUD) exchange rate is rising this morning, ahead of the Bank of England’s (BoE) interest rate decision.

At the time of writing, GBP/AUD is trading at around AU$1.9213, strengthening by just over 0.3% from the morning’s opening rates.

Pound (GBP) Ticks Down Ahead of BoE Decision

The Pound (GBP) is edging lower this morning, as investors await the Bank of England’s interest rate decision at noon.

Following on from yesterday’s inflation print, bets on a hike from the BoE receded dramatically. Investors are now uncertain over the likelihood of a 25bps increase.

With this in mind, investors appear to be shying away from the Pound. Recent data has shown notable economic slowdown, and a further hike risks running into overtightening.

Victoria Scholar, Head of Investment at Interactive Investor, commented:

‘UK economic data has been softening with weak PMI readings, an uptick in the unemployment rate and a disappointing GDP reading for July, highlighting the fragility of the UK economy. Overtightening has the potential to push the UK into a recession, which supports the case for a hold today.’

Should the BoE press ahead with a hike, it may ring dovish. The Pound appears to be caught in a rock and a hard place for the time being.

Australian Dollar (AUD) Stumbles as Investors Eye End of RBA Tightening Cycle

The Australian Dollar (AUD) is floundering this morning, amid speculation that the Reserve Bank of Australia (RBA) has concluded its tightening cycle.

Investors have begun to suspect that the RBA will hold rates as they are for the time being, following Tuesday’s dovish minutes.

The minutes stated:

‘The recent flow of data was consistent with inflation returning to target within a reasonable timeframe while the cash rate remained at its present level. Members recognised the value of allowing more time to see the full effects of tightening of monetary policy since May 2022, given the lags in the transmission of policy through the economy.’

Furthermore, China’s tetchy economic recovery is exerting further pressure on the ‘Aussie’. Recently, the People’s Bank of China (PBoC) elected not to cut the prime loan rate. The dovish move is dampening AUD’s appeal due to its nature as a Chinese proxy-currency.

Pound Australian Dollar Exchange Rate Forecast: UK Private Sector Data in Focus

Looking ahead for the Pound, tomorrow brings the release of August’s retail sales data. Economists anticipate an increase of 0.5%, which would reflect a significant recovery from the previous month’s data.

If this prints in line with forecasts, GBP could strengthen against its peers. However, if it prints in line with past releases and disappoints, Sterling may struggle for support.

This is followed by the latest private sector indexes, representing September’s economic activity. Additional slowdown is forecast for the service sector, which may weigh on Sterling.

For the Australian Dollar, the latest PMI flashes are due to print overnight tonight. Both manufacturing and service sector indexes are forecast to have contracted further, which could dent the ‘Aussie’.

John Mulcahey

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