Pound Australian Dollar (GBP/AUD) exchange rate slumps as BoE opens door to rate cuts
Article updated 13:50, 21/3/2024:
The Pound Australian Dollar (GBP/AUD) exchange rate is falling further this afternoon in the wake of the Bank of England’s (BoE) interest rate decision.
While the BoE met market expectations and kept interest rates unchanged, the Monetary Policy Committee (MPC) took a neutral stance.
Additionally, the BoE’s accompanying meeting minutes emphasised a data-driven approach. The minutes stated:
‘The Committee had judged since last autumn that monetary policy needed to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipated. The Committee recognised that the stance of monetary policy could remain restrictive even if Bank Rate were to be reduced, given that it was starting from an already restrictive level.’
With this in mind, investors considered when the BoE may move to cut rates in the future, prompting GBP to plummet.
At the time of writing, GBP/AUD is trading around AU$1.9306, a fall of just under 0.5% from the morning’s opening rates.
Original article continues below:
Pound Australian Dollar (GBP/AUD) exchange rate drops as Australian labour market rebounds
The Pound Australian Dollar (GBP/AUD) exchange rate is slipping this morning, following a surprise fall in Australian unemployment.
At the time of writing, GBP/AUD is trading at around AU$1.9336, a fall of around 0.3% from the morning’s opening levels.
Australian Dollar (AUD) lifted by improving labour market
The Australian Dollar (AUD) is gathering pace this morning, following stronger-than-expected employment data.
Employment was found to have enjoyed a sharp rebound during February, with the unemployment rate falling to 3.7%. The increase was predominantly driven by a 78,200 increase in full-time jobs, as well as a more modest uptick in part-time employment.
This follows a surprise increase in unemployment in January, which sparked concerns that the labour market was loosening at a rapid pace. However, the signs remain encouraging, and will likely keep the Reserve Bank of Australia (RBA) away from cutting interest rates.
Shane Oliver, Chief Economist at AMP, commented:
‘These numbers have been bouncing around a lot…so I think the RBA would probably be inclined to look through this and wait for the dust to settle and therefore want to look at a few months worth of data before concluding anything.’
Additionally, last night’s Federal Reserve interest rate decision is keeping markets upbeat this morning. With the Fed now committed to cutting rates, risk-sensitive assets such as the ‘Aussie’ are enjoying additional tailwinds.
Pound (GBP) in flux ahead of BoE decision
The Pound (GBP) is fluctuating this morning, as markets await the Bank of England’s latest interest rate decision.
With the decision due at noon, investors are shying away from emphatically supporting Sterling, as they await fresh direction.
The BoE is expected to keep interest rates, and its current forward guidance, unchanged from last month. Additionally, a three-way split is expected amongst the Monetary Policy Committee.
Susannah Street, Head of Money and Markets at Hargreaves Lansdown, commented:
‘With February’s inflation snapshot coming in slightly lower than expected, it’ll give the monetary policy committee a little more confidence that their action is doing the trick in bringing down demand in the economy, but a majority vote for rates to be held is still expected.’
Elsewhere, despite the Pound’s increasingly risk-sensitive nature, GBP is struggling to capitalise on the morning’s bullish tint.
Pound Australian Dollar exchange rate forecast: Falling UK retail sales to dent Pound?
Looking beyond today’s events for the Pound, investors are likely to focus on tomorrow’s retail sales data for February.
Economists are expected a 0.3% decline in sales on a monthly basis, which could weaken Sterling by suggesting weak consumer spending.
Furthermore, volatility from this afternoon’s BoE interest rate decision is likely to affect Sterling tomorrow.
For the Australian Dollar, the Reserve Bank of Australia (RBA) is due to release its latest financial stability review overnight.
If this proves grim reading for investors, the ‘Aussie’ could slip against its peers. If the Australian economy is found to be deteriorating, it may spark rate cut bets.