Pound Australian Dollar Exchange Rate News: GBP/AUD Fluctuated as SVB Collapse Prompts Risk-On Mood

March 13, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Fluctuated as SVB Collapse Prompts Risk-On Mood

Australian Dollar (AUD) Supported by Risk-On Sentiment

The Australian Dollar (AUD) enjoyed modest gains on Monday after news of Silicon Valley Bank collapsing last week prompted fears over the Federal Reserve’s aggressive monetary tightening policy.

With SVB folding sending alarm bells ringing across the markets, investors are now repricing expectations for the Fed to cool their aggressive rate hikes. The central bank took measures to prevent a mass sell-off of funds, buoying global market sentiment. Concerns that if the Fed continued their path, similar repercussions could be felt. Richard Flax, Chief Investment Officer at Moneyfarm, commented:

‘With the market turmoil following the collapse of SVB, there are now heightened expectations that the Federal Reserve will be less aggressive with its monetary policy.

‘In light of the potential stress on the banking system, the market is now pricing a greater likelihood of only a 25bps hike at the next meeting (from an almost “guaranteed” 50 bps pre-SVB collapse). The market’s expectation for the peak Fed Funds rate has also fallen sharply from where we were a week ago.’

Pound (GBP) Undermined by Caution Ahead of Budget

Meanwhile, the Pound (GBP) traded without a clear direction amid a lack of economic data. With Chancellor Jeremy Hunt set to outline the government’s tax and spending plans on Wednesday, GBP investors have turned cautious.

The Spring Budget is scheduled for Wednesday and plans for the government’s economic policies for this year will be in the spotlight. The Office for Budget Responsibility (OBR) will also be publishing their latest figures on the UK’s growth forecast over the next five years. A myriad of mixed data and downbeat economic outlooks, GBP investors, and the UK itself, will be hoping for some solid growth plans.

However, lending some modest support, and preventing a further slide, is HSBC’s bailout of the UK arm of SVB. The government and HSBC eked out a deal in time to buy SVB UK, preventing a potential tech company fallout. Concerns had grown that hundreds of tech companies in the UK could fold in the fallout of SVB going under. But a last-minute takeover avoided that, Hunt commented on Twitter:

‘This morning, the government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC. Deposits will be protected, with no taxpayer support. I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise.’

GBP/AUD Exchange Rate Forecast: Loosening Labour Market to Sour Sterling?

Looking ahead, the Pound Australian Dollar exchange rate could see further daylight between the Pound and the ‘Aussie’ when employment data is released on Tuesday. With an expected climb in unemployment to 3.8% and wage growth only increasing moderately, a cooling labour market could weigh on GBP investors.

Meanwhile, consumer and business confidence could weigh on the Australian Dollar. However, despite an expected improvement in optimism from consumers, a slip in the business index could offset the optimism.

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