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GBP to AUD Exchange Rate Recovers from Tuesday Slump ahead of Federal Reserve Decision

June 19, 2019 - Written by Ben Hughes

Due to persisting market concerns that the Federal Reserve may not be as dovish as expected, investors were hesitant to keep buying the trade-correlated Australian Dollar and the British Pound to Australian Dollar (GBP/AUD) exchange rate rebounded from its weekly lows today. This was despite a lack of notable support for the Pound.

Despite the Australian Dollar’s recent weakness, GBP/AUD has trended with a downside bias this week so far. GBP/AUD opened the week at the level of 1.8320 and fluctuated when markets opened, before tumbling yesterday afternoon and touching on a weekly low of 1.8223.

Following yesterday’s dip, GBP/AUD rebounded and at the time of writing was trending closer to the level of 1.8311 – just below the week’s opening levels.

The trade-correlated Australian Dollar’s strength is limited ahead of this evening’s highly anticipated Federal Reserve policy decision.

GBP Exchange Rates Rebound despite Lack of Supportive UK News

The Pound has been broadly unappealing over the last couple of months, and so far this week’s news has done little to change that.

While the Pound has rebounded slightly from its worst levels, this has been more due to investors being hesitant to sell the British currency much lower than it has already fallen.

The Conservative Party leadership contest to decide who will succeed UK Prime Minister Theresa May has been ongoing since last week, and Brexiteer Boris Johnson has quickly emerged as the clear frontrunner.

MPs took part in a second round of voting yesterday, and Boris Johnson came out in front with over double the runner-up’s number of votes.

Dampened uncertainty has helped the Pound to avoid further losses, but as Johnson has indicated he would embrace a no-deal Brexit investors remain anxious.

Today’s UK inflation rate data met expectations, with every major print slowing slightly in May. While the data was unsurprising, analysts said it doused any remaining chances of the Bank of England (BoE) hiking UK interest rates tomorrow.

Analysts don’t expect the bank will be in a hurry to move on monetary policy either, with Brexit uncertainty set to persist for months. According to Tom Stevenson, Investment Director for Personal Investing at Fidelity International:

‘In the thick of a leadership contest - and with Brexit as far from resolution as ever - the Bank will most likely err on the side of caution as we face continuing political and economic uncertainty during the rest of 2019.’

AUD Exchange Rates Slides Ahead of Federal Reserve Decision amid Central Bank Uncertainty

The Federal Reserve and Reserve Bank of Australian (RBA) are now both expected to cut interest rates over the coming year, as trade uncertainty and slowing global growth hit the US and Australian economies.

However, analysts have suggested that market bets for Federal Reserve interest rate cut bets may have been overdone.

As a result, speculation that RBA interest rate cuts could keep coming while the Fed’s dovishness is fairly light in comparison is making investors hesitant to buy the Australian Dollar today.

The Australian Dollar is a high yielding currency, and it often benefits if US interest rates fall.

Yesterday’s slightly weaker Australian Dollar performance followed a strong rebound for the currency yesterday, as investors reacted to the latest US-China trade developments.

US President Donald Trump confirmed that he would meet with China President Xi Jinping at a G20 conference at the end of the month, and it was also confirmed that US-China trade negotiations would resume ahead of the meeting.

As Australia is a trade-heavy nation and China is Australia’s biggest trade partner, this news led to a brief boost in AUD demand, though Federal Reserve uncertainty continued to weigh heavily on the ‘Aussie’ today.

GBP/AUD Exchange Rate Forecast: Federal Reserve in Focus Ahead of Tomorrow’s RBA News

While Pound movement is likely to remain limited on UK political and economic uncertainties, the Australian Dollar’s appeal will be driving GBP/AUD movement for the remainder of the week.

This evening’s Federal Reserve policy decision could potentially be the biggest event of the week for markets, and it certainly has the potential to influence the Australian Dollar.

If the Fed signals a more dovish than expected response on US monetary policy, the Australian Dollar could see a surge in demand and GBP/AUD would fall. A less dovish than expected Fed would have the opposite effect though.

This evening’s Fed news is likely to be even more influential for GBP/AUD than tomorrow’s domestic Central Bank news.

The Reserve Bank of Australia’s (RBA) latest bulletin will be published, followed be a speech from RBA Governor Philip Lowe.

The RBA is expected to cut Australian interest rates again over the next year, but if the bank takes a shift in tone tomorrow it could influence the ‘Aussie’.

Tomorrow will also see the Bank of England (BoE) hold its June monetary policy decision, but UK political developments and Australian Dollar movement are more likely to influence the Pound to Australian Dollar exchange rate’s late-week movement.
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