GBP AUD Exchange Rate Slumps as BoE Leave Rates Unchanged

May 11, 2017 - Written by Toni Johnson

STORY LINK GBP AUD Exchange Rate Slumps as BoE Leave Rates Unchanged

The Pound Australian Dollar (GBP AUD) exchange rate tumbled this afternoon as the Bank of England (BoE) voted to leave interest rates on hold.

When asked why the bank left rates at a record low of 0.25% despite robust inflation, BoE Governor Mark Carney responded that the level of stimulus was appropriate for the current situation and that inflation is only above the bank’s target rate of 2.0% because of the 16% fall in Sterling following the Brexit vote.

The bank was also notably sanguine on the UK’s growth prospects this year, trimming its expectations from 2.0% to 1.9%, with the revision being largely driven by forecasts that real wages will fall this year, placing greater pressure on consumer spending.

However The BoE stuck a slightly more hawkish tone than expected saying that future monetary tightening would be possible if the economy remained on its track in May’s projections.

This did little to convince analysts however, many of whom forecast that the BoE will leave interest rates at their current levels for the foreseeable future, especially as Carney warned that any future hikes would be reliant upon a ‘smooth’ Brexit, something that looks increasingly unlikely due to Theresa May’s apparent hard-line stance on negotiations.

ING economist James Smith said;

‘We suspect that the MPC will continue to “look through” the spike in CPI, and focus instead on the adverse effect it is having on consumers. The uncertainty surrounding the UK’s future relationship with Europe is still also likely to weigh on investment and hiring for the foreseeable future’

However the Australian Dollar has also struggled a bit today as prices for the country’s largest export, iron ore continue to crumble.

Iron ore futures plummeted to a new four-month low on China’s Dalian Commodity Exchange this morning as falling demand and rising stockpiles saw trade of iron ore futures greatly diminished.

The spot benchmark prices of 62% iron ore is now threatening to dip below the $60 a tonne marker after previously striking a multi-year high of $94.86 in February, with the Australian government forecasting in its recent budget that prices will reach $55 a tonne over the coming year.

Looking ahead the GBP AUD exchange rate may strengthen next week as the UK’s latest CPI data is expected to report that inflation held steady last month,

Meanwhile the Australian Dollar could also tumble next week following the release of the minutes from the Reserve Bank of Australia’s (RBA) latest policy meeting as they are likely to reaffirm the bank’s dovish outlook on Australia’s housing and labour markets.

Current Interbank Exchange Rates

At the time of writing the GBP AUD exchange rate was trending around 1.7474 and the AUD GBP exchange rate was trending around 0.5722.

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