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Pound to Australian Dollar Exchange Rate News: GBP/AUD Slumps as Dovish Fed Bolsters Risk Appetite

January 10, 2019 - Written by John Cameron

The Australian Dollar (AUD) struck higher against the Pound (GBP) on Thursday morning as a sell-off of the US Dollar (USD) on Wednesday evening helped to bolster demand for risk-sensitive currencies.

This sell-off in USD came in the wake of a raft of dovish signals from the Federal Reserve, indicating the US central bank may purse a less aggressive path for monetary policy in 2019 than previously indicated.

The minutes from the Fed’s December policy meeting, releases on Wednesday evening revealed that the bank was split last month, with some members of the Federal Open Market Committee (FOMC) arguing against a rate hike.

These members pointed to weak inflation readings as well as suggestions of a global slowdown as reasons for the Fed to adopt a ‘wait and see’ approach until there is greater clarity on how economic conditions are likely to develop.

This added further support to a raft of dovish speeches by Fed officials made earlier in the session.

Atlanta Fed president, Raphael Bostic, who does no sit on the bank’s rate setting committee was supportive a more cautious approach from the Fed this year in light of growing economic uncertainty.

‘A patient approach to monetary policy adjustments in the coming year is fully warranted in light of the uncertainties about the state of the economy and about what level of policy rates is consistent with a neutral stance.’

However it wasn’t all plain sailing for the Australian Dollar on Thursday, with the ‘Aussie’ briefly falling during the Asian session after China reported a sharper-than-expected slowdown in inflation in December.

This bolstered concerns of a downturn in Australia’s largest trading partner and dampening demand for the ‘Aussie’.

Pound (GBP) Exchange Rates Slump as Brexit Jitters Rise

Meanwhile the Pound (GBP) was placed on the defensive on Thursday as investors become increasingly wary of the UK currency ahead of next week’s parliamentary vote on Theresa May’s EU withdrawal deal.

Since delaying the ‘meaningful vote’ on her deal in December in order to avoid a humiliating defeat, May has been hard at work attempting to secure some formal assurances from the EU regarding the temporary nature of the Brexit backstop.

However so far May has struggled to get anything in writing, with her critics arguing that the deal being put forward to the House of Commons next week is fundamentally the same as the one that was supposed to be voted on last month.

This would suggest that despite the PM’s attempt to salvage the deal, it will still be rejected by MPs next week.

Such an outcome continued to hang over the Pound this week as it leads to further uncertainty and likely increases the chances of a no-deal Brexit.

GBP/AUD Exchange Rate Forecast: Dovish Powell to Lend Further Support to the ‘Aussie’

Looking ahead, the Pound Australian Dollar (GBP/AUD) exchange rate may come under additional pressure on Thursday afternoon as Fed Chair Jerome Powell speaks at the Economic Club in Washington DC.

This may see Powell reinforce his recent comments regarding the adoption a more ‘patient’ approach to monetary policy in 2019, something that may weaken the US Dollar (USD) and help to bolster market risk appetite.

Meanwhile the Pound may be offered some relief from Brexit on Friday as the UK publishes its latest round of economic data.

This may see Sterling strength with the release of November’s industrial production figures, with economists forecasting that factory output will have rebounded from -0.6% to 0.2%.

However any potential gains for the Pound may negated by the accompanying GDP figures as analysts predict that UK economic growth will have held at just 0.1% over the same period.

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