The Pound Australian Dollar (GBP/AUD) exchange rate slumped to a three-month low last week after the Bank of England (BoE) left interest rates unchanged at its September policy decision.
What’s Been Happening: GBP/AUD Tumbles amid Dovish BoE Decision
The GBP/AUD exchange rate wavered at the start of the week as markets braced for upcoming high-impact events.
The risk-sensitive Australian Dollar (AUD) then strengthened on Tuesday, courtesy of an improving market mood.
Midweek, the Pound (GBP) slumped after UK inflation cooled more than forecast. Markets drastically repriced expectations for more BoE interest rate hikes, which weighed heavily on the Pound.
GBP/AUD was able to temporarily recoup these losses after a hawkish Federal Reserve decision sparked widespread risk aversion, sapping the Australian Dollar’s appeal.
However, Sterling slipped again after the BoE decided to leave interest rates on hold at its latest meeting. The bank did indicate that it could raise rates again in future, which helped to limit GBP’s losses.
At the end of the week, the latest PMI reports revealed a worrying decline in UK service sector activity. GBP/AUD plunged to a three-month low.
Three Things to Watch Out for This Week
- Australian Inflation
Inflation in Australia is expected to have accelerated in August. If the data prints as forecast, bets on another Reserve Bank of Australia (RBA) rate hike could boost the ‘Aussie’.
- Australian Retail Sales
AUD exchange rates could then face some selling pressure on Thursday, with markets predicting a slowdown in Australian retail sales in August.
- UK GDP
The only British data of note this week is the UK’s final GDP growth rate reading for the second quarter. However, this will likely only influence Sterling if it differs from previous estimates.
GBP/AUD Forecast
Risk appetite could also drive notable movement in the Pound ‘Aussie’ pair this week, due to the Australian Dollar’s risk-sensitive nature. If the current downbeat mood persists, GBP/AUD could claw back some losses. That said, lingering worries about the UK’s bleak economic outlook could keep a firm lid on the Pound.