Pound Australian Dollar (GBP/AUD) Exchange Rate Falls on Dovish BoE Expectations

May 4, 2018 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Falls on Dovish BoE Expectations

NIESR Downgrades UK Economic Growth Forecasts – Pound (GBP) Exchange Rates Fall

The Pound to Australian Dollar (GBP/AUD) exchange rate tumbled on Friday as markets responded to news that a major economic think-tank downgraded its growth forecasts for 2018.

The National Institute for Economic and Social Research (NIESR) has announced that it expects expansion of 1.4% in 2018, down from the previous prediction of 1.9%.

The group also raised eyebrows by estimating that interest rates would not rise again until August at the earliest.

Amit Kara, NIESR Economist pointed out that this downward revision was largely a result of recent poor data pulses, with the UK’s Q1 GDP easing and private sector activity failing to make much of a recovery in April.

Mr Kara stated:

‘It is not clear if this is just a soft patch or the start of a prolonged period of weakness’.

It is, however, clear that analysts are no longer expecting a rate hike next week, a prospect that has begun to increasingly weigh on demand for the Pound.

RBA Monetary Policy Statement Leaves Mixed Impression – Australian Dollar (AUD) Exchange Rates Fluctuate

The Australian Dollar spent Friday fluctuating, supported on one hand by some hawkish comments in the Reserve Bank of Australia’s (RBA) latest monetary policy statement, but limited on the other by the current strength of the ‘Greenback’.

The RBA’s quarterly statement highlighted that increasing interest rates might be appropriate ‘at some point’, with rises largely hinging on inflation reaching the central bank’s target range.

The bank also revealed that they expect Australia’s GDP growth to climb to 3.25% by December this year, but cautioned that a higher value ‘Aussie’ Dollar might undermine easing efforts.

Another driver for the Australian Dollar today was the latest Chinese services PMI, which increased to 52.9, up from the previous score of 52.3.

This was below expectations of 53.9, however, with the softer-than-expected reading adding to today’s volatility.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: Bank of England Rate Decision LOOMS

The biggest event next week will be the Bank of England’s (BoE) May rate meeting, with the Monetary Policy Committee (MPC) expected to vote to leave interest rates on hold.

If this does occur then it would likely be based on the weakness of Q1 economic growth in the UK, with voting members concerned that the economy might be too fragile to handle a rate rise at this point in time.

Beyond this, the poor private sector activity results in April could also keep a lid on any potential hawkish activity.

There is, however, the possibility that bank Governor Mark Carney might sing praises for the UK’s labour market, and with inflation still sitting above target levels a rate hike within 2018 is still on the table.

If any hawkish sentiment is detected in the bank statement or accompanying press conference then the GBP/AUD exchange rate could find some support.

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