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GBP AUD Exchange Rate Rally Cut Short by BoE Rate Decision

December 14, 2017 - Written by John Cameron

The Pound Australian Dollar (GBP AUD) exchange rate retreated from its early gains this morning as investors reacted to the Bank of England’s (BoE) latest rate decision.

Pound (GBP) Weakened by BoE Caution

After initially strengthening this morning following a surprise surge in domestic retail sales in November the Pound was forced to relinquish its gains following the BoE latest monetary policy meeting.

As expected the bank voted to leave interest rates on hold this month, after implementing its first rate hike in over a decade last month.

Some analysts had predicted that another uptick in inflation in November, could prompt a response from the bank giving that it is now over 1% clear of the bank’s target rate of 2% and continued to rise despite the rate hike.

Most disheartening to investors however will be the bank’s continued caution in regards to Brexit as despite the UK finalising its exit agreement with the EU last it suggested that it remained a major threat to economic growth.

Ben Brettell, senior economist at Hargreaves Lansdown said;

‘After the excitement of last month’s interest rate rise it was back to business as usual for the Bank of England today, with a fully-expected unanimous no change decision.’

‘The minutes were also fairly dull, with little having changed in the Committee’s view since the November Inflation Report. Brexit is highlighted as the most significant influence on the economic outlook.’

‘As this Brexit-related uncertainty is almost certainly here to stay, I expect the Bank to proceed cautiously from here.’

Australian Dollar’s (AUD) Bolstered by Impressive Jobs Report

The Australian Dollar has strengthened today as Australia’s latest labour report blew market expectations out of the water.

According to data published by the Australian Bureau of Statistics (ABS) today employment rose by 61,600 in November, up from 7,800 the previous month and sailing past expectations of a more modest rise of 19,200.

The jump in employment did not result in a decline in the jobless rate however as it held at 5.4% last month due to the rise in employment being offset by another increase in labour force participation.

While the data was certainly impressive analysts remain sceptical about the prospect that the continued improvement in employment will prompt the Reserve Bank of Australia (RBA) to strike a more dovish tone in the future, especially given sub-par wage growth.

Tom Kennedy, Economist at JPMorgan Securities Australia said;

‘The RBA will be encouraged by the decline in the unemployment rate through 2017, and the strength of employment allows officials to maintain their relatively upbeat tone.’

‘But it is hard to attribute cyclical significance to the resurgence of employment given the population growth and health care drivers, which will struggle to maintain their current trajectory. Further, benign wage growth, elevated underemployment and sub-trend real GDP growth, will require officials to see much further progress on reducing the unemployment rate in order to change their neutral policy outlook.’

GBP AUD Forecast: EU Summit to Vote on Fate of Brexit Talks

Looking ahead the GBP AUD exchange rate could see some more volatility later today as Theresa May arrives in Brussels for the latest EU summit.

Today’s summit will be a key litmus test for the UK government’s Brexit plans as EU leaders will vote on whether enough progress has been made in negotiations to allow talks to move to the second stage and allow trade discussions to finally get underway.

Meanwhile the Australian Dollar may be able to extend its gains on Friday if iron ore prices begin to trend higher again after mixed trading on Wednesday.

Current Interbank Exchange Rates

At the time of writing the GBP AUD exchange rate was trending around 1.7528 and the AUD GBP exchange rate was trending around 0.5708.

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