Pound Australian Dollar (GBP/AUD) Exchange Rate Recovers as BoE Strikes Hawkish Tone
The Pound Australian Dollar (GBP/AUD) exchange rate is gaining ground today, after hitting a near six-month low overnight, as the Bank of England (BoE) struck a hawkish tone at its final policy meeting of 2023.
At the time of writing the GBP/AUD exchange rate is trading at AU$1.8935, up 0.7% from the start of today’s European session but still well below yesterday’s levels.
Pound (GBP) Recovers following BoE Announcement
The Pound (GBP) is regaining strength today after the BoE delivered its final interest rate decision of 2023 with a hawkish twist.
Although the bank left interest rates unchanged, as expected, three of the nine members of the Monetary Policy Committee voted for Christmas rate hike. This was an unexpectedly hawkish split.
Furthermore, the bank’s accompanying policy statement struck a more aggressive tone than expected. In addition to pushing back on rate cut bets, the BoE left the door open to additional rate hikes in the future:
‘[T]he Committee continues to judge that monetary policy is likely to need to be restrictive for an extended period of time. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.’
Sterling is rallying in the wake of the decision, with GBP/AUD recouping some of its overnight’s losses. However, it’s still sharply down on the week.
Australian Dollar (AUD) Climbs following Fed Decision
The Australian Dollar (AUD) is holding strong today after the Federal Reserve signalled that it could cut interest rates several times in 2024, which sparked a risk-on mood within the markets.
With the Fed signalling rate cuts next year, investors are seemingly optimistic about the economic outlook in 2024, bolstering the risk-sensitive Australian Dollar’s appeal. The ‘Aussie’ rallied to multi-month highs against many of its peers.
The strength came despite an uptick in Australia’s unemployment rate, showing an increase from 3.8% to 3.9% for November – its highest level since May 2022. Forecasters had predicted it to come in at 3.8%, from October’s preliminary reading of 3.7%.
Even with this increase in unemployment, the ‘Aussie’ managed to shrug off any negative impact, and still managed to rise against its counterparts, enjoying the cheery market mood.
Although AUD has ceded some ground to GBP today, it is still clinging on to the bulk of its gains.
GBP/AUD Exchange Rate Forecast: PMIs to See Sterling Strengthen?
Looking ahead, we could see some volatility in the Pound as investors react to the BoE decision. In particular, the accompanying press conference has the potential to boost or dent GBP, depending on how hawkish BoE Governor Andrew Bailey sounds.
Attention then turns to the latest PMI releases, with the UK surveys due out tomorrow. If activity in the UK services sector continued to recover in December then the Pound could end the week on strong footing.
Turning to the Australian Dollar, tonight also sees the release of the Australian services and manufacturing PMIs. Both are expected to slightly increase but remain in contraction territory, which could hobble AUD.
Overnight we’ll also see important Chinese data set for release, including industrial production, retail sales and the unemployment rate. Forecasters expect to see upbeat results, which could reflect positively on the Australian Dollar as AUD trades as a proxy currency for the Chinese economy.