Pound Australian Dollar (GBP/AUD) Exchange Rate Narrows as BoE Reiterates Need to Cut Inflation

February 9, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Narrows as BoE Reiterates Need to Cut Inflation

Pound Australian Dollar (GBP/AUD) Exchange Rate Narrows as BoE Reiterates Need to Cut Inflation

The Pound Australian Dollar (GBP/AUD) narrowed on Thursday morning, as the Bank of England (BoE) Governor Andrew Bailey reiterated the need to curb inflation.

At the time of writing, GBP/AUD traded at around AU$1.7391, showing little movement from Thursday’s opening rates.

Pound (GBP) Climbs as BoE Policymakers Reiterate Desire to Curb Inflation

The Pound (GBP) climbed on Thursday morning, following comments from Bank of England (BoE) policymakers during a testimony given to the Treasury Committee.

BoE Governor Andrew Bailey, Senior Economist Huw Pill and external members such as Silvana Tenreyro spoke to the committee following the recent interest rate hike.

During the testimony, Governor Bailey stated: ‘Our job is to get inflation back down to target. The public will, of course, expect us to do that. And we will do it. I would, of course, expect the public to say ‘it’s your job to get inflation down to target’ and my response is ‘yes it is, and we will do it’.

With this in mind, GBP investors may have been cheered. As inflation remains significantly above the Bank of England’s target rate of 2%, there may be room for further tightening. Because of this, rate hike expectations may have been elevated.

Furthermore, Thursday morning’s bullish market mood may have contributed an extra tailwind to Sterling. With the currency becoming increasingly risk sensitive, it is more susceptible to these shifts in risk appetite.

Australian Dollar (AUD) Rallies amid Bullish Trade

The Australian Dollar (AUD) rallied on Thursday morning, as an upbeat market mood lifted the risk sensitive ‘Aussie’ against its safer peers.

The mood may have been prompted by paring back of expectations around the Federal Reserve’s cycle of interest rate hikes. With the Fed seemingly slowing down, it serves a lower risk of harming the global economy.

Furthermore, tensions between China and America appeared to ease gently, lending support to the Australian Dollar due to its nature as a Chinese proxy currency.

Similarly, reports came in that the first shipment of Australian coal to China had landed, which may have boosted support for the ‘Aussie’ by showing improving trade links with the economic superpower.

Investors appeared to be hopeful that this could pave the way for further trading links with China as relations continued to thaw between the two countries. Due to the Australian economy’s dependence on exports, the news may have given an extra tailwind.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast:

Looking ahead for the Australian Dollar, Friday morning sees the release of the Reserve Bank of Australia’s statement on monetary policy.

The statement is likely to be of keen interest to AUD investors, as it may outline the future direction of the RBA’s rate hike cycle. If it remains as hawkish as the RBA’s communication around inflation and the need for more tightening, the Australian Dollar could be boosted as investors hope for further hikes.

Also of significance is the latest Chinese inflation data. Inflation is forecast to have increased in January, showing that the economic superpower’s reopening is allowing the country to avoid deflation. As such, this could bring further tailwinds for the ‘Aussie’ due to its nature as a Chinese proxy currency.

For the Pound, GDP data for Q4 and December is due to print on Friday. The quarter on quarter data is likely to take precedence for GBP investors, as it is forecast to show that the UK’s economy stalled during the fourth quarter.

As such, this could bring some optimism for GBP investors, as it shows that the UK has avoided slipping into a recession. However, due to the sharp downturns forecast in monthly and yearly figures, these tailwinds may be limited in scope, leading to a more muted trade for Sterling.

Elsewhere, risk appetite is likely to play a role in shaping the currency, as both are risk sensitive assets. However, as the ‘Aussie’ is a riskier asset, if Thursday morning’s risk-on trade carries over, AUD could continue to strengthen.

Like this piece? Please share with your friends and colleagues:

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Australian Dollar Forecasts