GBP to AUD Exchange Rate Holds Near Weekly Highs as Risk-Sentiment Remains Low

April 26, 2018 - Written by Minesh Chaudhari

STORY LINK GBP to AUD Exchange Rate Holds Near Weekly Highs as Risk-Sentiment Remains Low

Despite a lack of supportive factors in Pound trade and market anticipation for Friday’s UK growth projections, the British Pound to Australian Dollar (GBP/AUD) exchange rate has advanced this week due to market risk-version weighing on the Australian Dollar.

A drop in Bank of England (BoE) interest rate hike bets caused GBP/AUD to slip from 1.8331 to 1.8251 last week, but the pair has already recovered those losses and then some. Yesterday, GBP/AUD hit a weekly high of 1.8458 and trended near the level of 1.8422 at the time of writing.

GBP Avoids Losses as Investors Anticipate Key UK Growth Results

This week’s UK data has been largely uninspiring for Pound investors, as it has either been mixed or too low-influenced to really impact the Pound outlook.

This is especially true as investors are more eager to await major UK news on Friday before making any changes to Bank of England (BoE) interest rate hike bets or their positions on the Pound.

Analysts have argued that while the BoE policy decision outlook for 2018 and beyond is likely less hawkish since Britain’s latest underwhelming inflation data was published, the bank may still hike UK interest rates in May as it has previously hinted it would.

Many economists believe that if Britain’s Friday growth projections are solid or beat expectations, a May interest rate hike from the BoE is still on the cards.

However, it is also true that the Pound’s position is a lot more sensitive than it had been a couple weeks ago. BoE interest rate hike bets have been fluctuating and Sterling’s support is limited.

According to Lukman Otunaga, an analyst from FXTM:

‘Slowing UK inflation and a cautious Mark Carney have forced investors to scale back expectations of a May rate hike. The Pound, which remains extremely sensitive to monetary policy speculation, could depreciate further based on these factors,’

Essentially, the Pound’s limited appeal comes from the possibility that Friday’s UK data will support BoE interest rate hike bets, rather than any recent UK data or news.

Thursday saw the publication of Britain’s finance mortgage approvals results from March, which slightly beat expectations with a result of 37.6k.

CBI also published its April distributive trades results, which disappointed by printing a contraction of -2 rather than the forecast 5.

It followed other CBI data published earlier in the week. CBI’s industrial trends and business optimism results were both disappointing too.

AUD Weighed by Risk-Aversion and Disappointing Australian Inflation

Strength in the US Dollar (USD) and expectations for US interest rates to continue rising in the coming years have made investors hesitant to buy risky currencies like the Australian Dollar this week.

US Treasury 10-year bond yields have been climbing and reached 3% for the first time since January 2014 this week, in another strong indication that markets expect US price pressures to strengthen and US interest rates to rise.

On top of this, the Australian Dollar has been weighed by underwhelming Australian data. Tuesday saw the publication of Australia’s Q1 Consumer Price Index (CPI) results.

The inflation figures fell short of expectations in all major prints, with quarterly inflation slowing to 0.4% and yearly inflation unexpectedly remaining at 1.9% rather than improving to 2% as forecast.

Thursday’s Australian export and import price results were both higher than expected, but this only gave the Australian Dollar a limited boost.

GBP/AUD Forecast: Bank of England (BoE) Bets in Focus

If Friday’s UK data or speech from Bank of England (BoE) Governor Mark Carney disappoint investors, the Pound to Australian Dollar (GBP/AUD) exchange rate could shed most of its weekly gains.

UK growth is forecast to have slowed from 0.4% to 0.3% quarter-on-quarter, and have remained at 1.4% year-on-year.

If UK growth meets or beats expectations, GBP/AUD is likely to end the week near its weekly highs as investors would be more confident in the possibility of a May interest rate hike from the BoE.

Of course, disappointing growth or dovish comments from BoE officials on Friday could cause some late-week losses instead.

Australian Dollar investment could actually sturdy in the coming days, as investors anticipate next Tuesday’s Reserve Bank of Australia (RBA) policy decision.

However, the bank is not expected to make any changes to monetary policy and a cautious tone from the bank could cause further AUD weakness.

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TAGS: Pound Australian Dollar Forecasts