GBP/AUD exchange rate climbs despite BoE headwinds
The pound Australian dollar (GBP/AUD) exchange rate has reversed a portion of yesterday’s losses following the Bank of England’s (BoE) rate cut decision, as a risk-off mood and mixed AU inflation data pressures the Australian dollar (AUD).
At the time of writing, GBP/AUD is trading at A$1.9566, virtually unchanged from yesterday’s lunchtime level.
Australian Dollar (AUD) succumbs to losses at end of week
The Australian dollar is sliding against the majority of its peers today, though the downtrend is not overly steep. During the overnight session, AUD even gained in appeal as producer price inflation in Australia was confirmed to have risen in the second quarter of 2024.
Evidence of inflated producer prices suggests that the Reserve Bank of Australia (RBA) faces a tough decision regarding monetary policy. Higher-for-longer interest rates may be deemed necessary to bring prices down further, painting the RBA in a more hawkish light than other major central banks.
Generally, hawkish central bank expectations boost the respective currency; yet ‘Aussie’ tailwinds were short-lived this morning. Weighing upon the currency as the European session began was a risk-off mood due to poor economic performance in the United States.
Earlier this week, US Federal Reserve chairman, Jerome Powell, commented upon the difficulty of measuring inflationary risks against an economic downturn. Powell said:
‘We have to weigh the risks of going too soon against the risks of going too late. It’s a very difficult judgement.’
As concern mounts over rising US unemployment and manufacturing data, there’s a danger than economic headwinds in the world’s largest economy could overflow. Meanwhile, weak Chinese data likewise depresses the Australian Dollar, given the close trading relationship between China and Australia.
Pound (GBP) remains pressured by dovish BoE
The pound (GBP) is struggling to rebound against the majority of its peers today, following yesterday’s interest rate cut and noncommittal commentary from the Bank of England.
The rate cut was a close call: five of the bank’s nine policymakers favoured the move, while four voted to keep interest rates on hold. Economists appear divided over the impression made by the BoE, with some noting Governor Andrew Bailey’s ‘cautious tone’ and others remarking upon the bank’s disinclination to hurry into cutting rates again.
A representative from Rabobank said: ‘Bailey added a hawkish element to the vote, saying the MPC will be careful not to cut interest rates too quickly or too much. The rate cut was accompanied by encouraging changes in economic forecasts.’
Optimistic assessments appear insufficient to raise GBP morale, however, as a fraction of market participants had held out hopes for an interest rate hold. The pound seems unlikely to enjoy tailwinds this afternoon, given a lack of significant UK data.
On the other hand, weaker-than-expected data from the US could buoy GBP if falling job vacancies are considered likely to prompt a dovish response from the Fed. A cautious move from the US central bank would make the BoE appear less dovish, potentially supporting Sterling.
GBP/AUD forecast: US data to influence exchange rate?
Through the remainder of the day’s session, a lack of domestic data from both the UK and Australia leaves GBP/AUD to trade upon external factors. Key US jobs data is likely to be in focus, given that economic performance in the United States has a knock-on effect for other economies.
If the number of job opportunities in the US is contracting, the Fed will need to consider the restrictive effects that high interest rates are having for businesses. Such an event could have bearish implications for the US dollar (USD); if the ‘greenback’ tumbles in consequence, both GBP and the ‘Aussie’ could enjoy tailwinds.