Pound Australian Dollar (GBP/AUD) Exchange Rate Firms as BoE Indicates Further Rate Hikes

November 24, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Firms as BoE Indicates Further Rate Hikes

Pound Australian Dollar (GBP/AUD) Exchange Rate Strengthens as BoE’s Huw Pill Indicates Further Rate Hikes

The Pound Australian Dollar (GBP/AUD) exchange rate has firmed on Thursday, as the Bank of England’s Chief Economist Huw Pill signalled further interest rate hikes were to come.

This saw the GBP/AUD exchange rate trade at around AU$1.7957 at the time of writing, an increase of roughly 0.3% from Thursday’s opening rates.

Pound (GBP) Firms as BoE Signals Further Rate Hikes

The Pound (GBP) firmed against most major peers during Thursday’s session, after comments from the Bank of England (BoE) Chief Economist Huw Pill pointed to further interest rate hikes.

Speaking on Wednesday night, Pill went on the record to say he didn’t anticipate interest rates hitting the market’s currently expected peak, but that further hikes were needed to curtail inflation.

Pill stated: ‘Given the need to contain the risk of greater inflation persistence implied by potential second round effects, further action is likely to be required to ensure inflation will return sustainably to its 2% target over the medium term. In my judgment there is still some more to do with bank rate in order to address prevailing inflationary pressures and complete the necessary normalisation of monetary policy.’

As such, investors supported the Pound, and shrugged off news of increasing industrial action. While university staff have embarked on the largest strike action in UK higher education’s history, food delivery workers have voted to strike and Royal Mail workers continue to strike. With ministers scheduled to meet union leaders, hope for resolutions seemed to lift investors.

Potentially capping further gains for Sterling was muted industrial trends data from the Confederation of British Industry. While above the expectations of -8, the data still fell from -4 to -5, signalling pessimism among UK industrial manufacturers.

Australian Dollar (AUD) Struggles as Chinese Covid Cases Spike

The Australian Dollar (AUD) traded narrowly during Thursday’s session, as fears over spiking Covid cases in China limited support for the proxy-currency.

Further restrictions have been deployed in China as Covid cases continued to rise, with shopping malls and parks being shuttered while authorities instructed individuals to remain at home.

The country has tightened their Covid policy once more, as a recent relaxation in the restrictions prompted infections to spike.

Furthermore, unrest has sparked in Zhengzhou’s Foxconn manufacturing plant, with the factory essentially isolated. Workers have to live and work on site, in a move to contain Covid, which has prompted protests from staff.

As such, AUD’s status as a Chinese proxy-currency saw it unable to make any strong gains, despite Thursday’s risk-sentiment striking a positive note.

Elsewhere, the Reserve Bank of Australia (RBA) indicated that they would continue to take a pragmatic approach to tackling inflation. On Tuesday, RBA Governor Philip Lowe stated that they were not on a pre-set path, and were keeping mindful of further changes to inflation.

Lowe stated: ‘That approach is qualitative in nature with any forward guidance focused on the short term. We value the flexibility in that approach and, in future, will avoid communication that focuses on the calendar or is too specific.’

As such, investors underpinned the ‘Aussie’ during Thursday’s session with hopes for higher interest rate hikes.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: BoE Policymakers in Focus

Looking ahead for the Pound, a speech from BoE board member Catherine Mann may serve to further boost Sterling, if she gives a further indication of the BoE’s path forward.

For AUD, macroeconomic data is scarce for the end of the week. As such, the ‘Aussie’ may trade on global developments, and how they affect investor risk sentiment. Further increases in Chinese Covid cases may sour the market mood, and bring the ‘Aussie’ down further.

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