Pound Australian Dollar (GBP/AUD) exchange rate trends up amid market volatility
The Pound Australian Dollar (GBP/AUD) exchange rate has recovered its losses from earlier in the week and extended gains to levels not seen since September 15. Risk-off sentiment yesterday amid central bank speculation may have affected GBP/AUD.
At the time of writing, GBP/AUD is trading at A$1.9392, having climbed by almost 0.7% in the past 24 hours.
Pound (GBP) starts the day on positive ground
The Pound (GBP) is trading in a mixed range against its peers this morning but finds strength following the release of January’s finalised manufacturing PMI. While the sector has been struggling recently, the data shows that manufacturing activity increased last month by more than initially assumed.
The main event of today, however, is the Bank of England’s (BoE) interest rate decision at midday UTC. The bank is presumed likely to keep interest rates on hold at 5.25%, but investors are unsure what to expect from Governor Andrew Bailey’s monetary policy statement.
The consensus seems to be that it is not yet time to consider interest rate cuts – a fairly hawkish position. However, the maintenance of restrictive monetary policy threatens to damage the UK economy even further, capping Sterling traders’ confidence.
Markets will also be eyeing the bank’s inflation and growth forecasts for cues. In November the BoE said it expected GDP growth to be ‘broadly flat’ in the fourth quarter of 2023 and across the coming quarters, adding that CPI inflation would likely return to target by 2025.
Speculating over the likely outcome of today’s decision, analysts at Goldman Sachs note:
‘We expect growth projections in 2025 and 2026 to be revised up. The BoE will revise down its near-term inflation forecasts because of softer consumption data and lower energy prices…
We continue to expect the first 25bps cut in May, followed by 25 bps cuts every meeting until Bank Rate reaches 3.0% in May 2025.’
Australian Dollar (AUD) softens following Fed statement
The Australian Dollar (AUD) is weakening against its peers today, depressed by both domestic data and wider movements in the currency market.
Yesterday’s interest rate decision from the Federal Reserve and the bank’s ruling out of an interest rate cut in March triggered risk-off sentiment, sapping appeal for the perceived-riskier Australian Dollar. Prolonged restrictive monetary policy in the world’s largest economy suggests that economic growth may be capped.
Moreover, the Fed’s decision marks possible monetary policy divergence with the Reserve Bank of Australia (RBA) as unexpectedly weak quarterly inflation in Aus increases the likelihood of rate cuts in the Antipodean country. Such an outcome would paint the RBA in a dovish light.
Further sapping support for the ‘Aussie’ today, Australian business confidence fell to –6 in Q4 2023 from –1 the previous quarter. Adding to domestic woes, building Permits also declined by 9.5% against the expected 1.1% growth in December.
GBP/AUD forecast: BoE decision to determine trading direction
The Pound Australian Dollar exchange rate is likely to trade this afternoon according to the outcome of the Bank of England’s interest rate decision.
If policymakers insist upon the necessity of keeping interest rates higher for longer, the Pound may weaken in anticipation of stunted economic growth. On the other hand, an acknowledgement of inflationary pressures alongside growth concerns may reassure investors of the bank’s measured approach.
Elsewhere, growth in the US manufacturing sector according to January’s ISM PMI could boost the Australian Dollar on positive risk flows. If industrial activity in the US picks up, it may be interpreted as a sign of global economic recovery.