Pound Australian Dollar (GBP/AUD) Exchange Rate Lags despite Hawkish BoE Speech

February 23, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Lags despite Hawkish BoE Speech

Pound Australian Dollar (GBP/AUD) Exchange Rate Lags despite Hawkish BoE Speech

The Pound Australian Dollar (GBP/AUD) exchange rate narrowed on Thursday, as hawkish remarks from the Bank of England (BoE) failed to lift Sterling.

At the time of writing, GBP/AUD traded around AU$1.7663, showing little movement from Thursday’s opening rates.

Pound (GBP) Uninspired by Hawkish BoE Comments

The Pound (GBP) traded without much direction on Thursday, despite hawkish comments from Bank of England (BoE) policymaker Catherine Mann.

During a speech on Wednesday morning, Mann emphasised the importance of bringing inflation down, and maintained her usual hawkish attitude.

She stated: ‘Given that the risk of increasingly persistent inflation rises disproportionately with the share of backward-lookingness, I believe that more tightening is needed, and caution that a pivot is not imminent. In my view, a preponderance of turning points is not yet in the data. We have an inflation remit, and we will achieve it one way or another.’

Furthermore, waning optimism over a key Brexit issue may have added further drabness to Sterling’s trade on Thursday. The Northern Ireland Protocol discussions have encountered resistance from Prime Minister Sunak’s own party members and the DUP, and investors have grown concerned that they may lose momentum.

Australian Dollar (AUD) Edges Higher on Further Rate Hike Bets

The Australian Dollar (AUD) made modest gains on Thursday, as markets began to price in further interest rate hikes from the Reserve Bank of Australia (RBA).

Earlier this week, the RBA’s latest meeting minutes were released and struck a broadly hawkish tone. In response, investors and analysts have begun to expect that the RBA will continue to hike interest rates.

However, these bets may have been pared back somewhat by Wednesday’s wage growth data. Wage growth printed below expectations, and showed a quarterly decrease. Because of this, it seems that the Australian labour market could be loosening.

Diana Mousina, Senior Economist at AMP Capital, stated: ‘There are now signs that the labour market is at a turning point, with jobs growth negative over December/January and forward-looking indicators of employment pointing to softer jobs growth in coming months.’

Furthermore, the ‘Aussie’ may have been cushioned by a return to risk appetite across the markets. With AUD being risk-sensitive, the shift may have benefitted the currency.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: Tenreyro Speech to Dent GBP?

Looking ahead for the Pound (GBP), the core catalyst of movement in the short term is likely to be a speech from Bank of England (BoE) policymaker Silvana Tenreyro. Compared to other members of the BoE’s Monetary Policy Committee, Tenreyro is more dovish than others.

Because of this, if she reiterates her desire for an interest rate pause and does so convincingly, the Pound could weaken as investors readjust their expectations on the Bank of England’s forward guidance.

Elsewhere, market sentiment may also play a role in shaping GBP exchange rates. With domestic headwinds ever present, further news of industrial action or food shortages could weigh on the Pound.

For the Australian Dollar (AUD), data releases are extremely scarce through to the end of the week. As such, risk appetite is likely to be the core catalyst of movement for the ‘Aussie’.

Due to the Australian Dollar’s risk sensitive nature, a souring market mood could dent AUD rates as investors look for safer opportunities.

However, with rate hike bets increasing for the Reserve Bank of Australia, any hints towards monetary policy or further hikes could be a boon for AUD.

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TAGS: Pound Australian Dollar Forecasts