January 31, 2019 - Written by John Cameron
STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Falters in Wake of Dovish Fed Policy Meeting
Australian Dollar (AUD) Exchange Rates Buoyed by Dovish Fed, Iron Ore Gains
The Australian Dollar (AUD) remained well positioned against the Pound (GBP) and the majority of its other peers on Thursday morning, after the ‘Aussie’ roared higher late on Wednesday.
This surge in AUD was mostly driven by sharp falls in the US Dollar (USD) on Wednesday evening in the wake of the Federal Reserve’s first policy meeting of 2019.
Unsurprisingly the bank voted to keep interest rates on hold this month, having hiked rates back in December and with recent communication from policymakers indicating a more dovish shift from the bank.
However it appears markets were a little taken back by the extent of the Fed’s U-turn in the past six-week, going from signalling up to two rate hikes in 2019, to dropping an language referring to the need for ‘further gradual increases’ in rates, while stating ‘patience’ would be necessary going forward.
The FOMC statement read:
‘The Committee continues to view sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee’s symmetric 2% objective as the most likely outcomes.
‘In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.’
Further driving the Australian Dollar’s gains was also the recent upswing in commodity prices, particularly iron ore, which accounts for roughly 20% of Australia’s total exports.
Prices for high grade ore have rocketed this week in amid fears of supply disrupting in the wake of the tragic collapse of dam at one of Brazil’s major iron ore mines.
This has seen iron ore prices soar to $84.50 a tonne, striking its highest levels since March 2017 and lifting the ‘Aussie’ on hopes it will provide a boost to Australian growth at the start of 2019.
Pound (GBP) Exchange Rates Muted as UK House Prices Stall
Meanwhile the Pound (GBP) was subdued on Thursday morning as UK house price growth fell close to a six-year low in January.
According to data published by Nationwide, UK house prices only rose 0.1% in January against the same point last year, down from 0.5% in December, the slowest annual growth since February 2013.
The slowdown appeared to be partly attributed to Brexit, with consumers reluctant to make any major investments in face of elevated economic uncertainty.
Robert Gardner, Nationwide's Chief Economist, said
‘It is likely that the recent slowdown is attributable to the impact of the uncertain economic outlook on buyer sentiment, given that it has occurred against a backdrop of solid employment growth, stronger wage growth and continued low borrowing costs.‘
Gardner suggests growth may bounce back in 2019 however, adding:
‘The economic outlook remains unusually uncertain. However, if the economy continues to grow at a modest pace, with the unemployment rate and borrowing costs remaining close to current levels, we would expect UK house prices to rise at a low single-digit pace in 2019.’
GBP/AUD Exchange Rate Forecast: UK Manufacturing PMI to Drag on Sterling?
Looking ahead, the Pound Australian Dollar (GBP/AUD) exchange rate may remain on the defensive, on Friday, following the release of the UK’s latest manufacturing PMI.
Economists forecast the index will reveal domestic factory activity slowed again in January, likely denting the appeal of Sterling.
This is to say nothing of the renewed Brexit uncertainty, which is also likely to hang over GBP exchange rates through the remainder of the week.
In the meantime, Australia will also publish its own manufacturing PMI, with the ‘Aussie’ potentially edging higher again if the domestic manufacturing sector rebounded in January are expected.
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