GBPAUD Rate Climbs, GBP EUR Rate Forecast To Rise

Modified: Tuesday, 4 June 2013 12:40 BST - Written by James Fuller

STORY LINK GBPAUD Rate Climbs, GBP EUR Rate Forecast To Rise

The down-at-heel Australian Dollar gave up ground in the wake of this morning’s Reserve Bank of Australia policy decision. The RBA’s board opted to maintain its key lending rate at its record low of 2.75%, as per analysts’ expectations. However it was the tone of Governor Glenn Steven’s accompanying rhetoric which heaped selling pressure on the Australian tender once more; Stevens informed the markets that the current state of price inflation in his nation’s economy provided ‘some scope for further easing’, of domestic monetary policy, ‘should that be required to support demand’. The fact that, in spite of last month’s 25 basis point cut in rates, Stevens is apparently maintaining his Bank’s easing bias hurt the Aussie, sending the GBP AUD exchange rate up to as high as 1.5853 earlier on today.

Meanwhile, the future direction of the European Central Bank’s monetary policy moved to the forefront of European investors’ thoughts this morning thanks to the publication of the latest whole of eurozone Producer Price Index data. The figure, which is considered to be a leading indicator of price inflation to come in an economy, showed at an annualised -0.2% versus analysts’ expectations of a 0.2% print.

The hint that inflation, which is already relatively low in the eurozone, may be about to head lower, is likely to stoke speculation from market participants regarding the potential for the introduction of negative interest rates by the European Central Bank. We will learn more on Thursday when the latest ECB policy announcement is closely followed by ECB President Mario Draghi’s press conference. Any suggestion that Europe’s central bank is considering a further loosening of its monetary policy will cause the euro to rapidly lose support, potentially sending the Pound to euro exchange rate (currency : GBP EUR) back up towards the psychologically significant 1.2000 level.

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TAGS: Australian Dollar Forecasts Currency Predictions Euro Forecasts Eur Forecasts