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GBP to AUD Exchange Rate Gains Limited Ahead of Bank of England (BoE) Policy Decision

September 17, 2020 - Written by Ben Hughes

Despite mixed market risk sentiment and a strongly rebounding Pound, the British Pound to Australian Dollar (GBP/AUD) exchange rate’s gains have been limited this week. The Australian Dollar found some support in stronger than expected job market data, while investors hesitate to move too much on the Pound ahead of today’s anticipated Bank of England (BoE) policy decision.

Still, GBP/AUD has been advancing overall this week due to the Pound’s recovery attempts. Since opening this week at the level of 1.7574, GBP/AUD has regained around two cents and currently trends near the level of 1.7780.

Unlike other Pound pairings though, GBP/AUD has only regained some of last week’s huge losses. Last week saw GBP/AUD fall from the level of 1.8230 and briefly touch on a year and a half low of 1.7502 before closing the week.

GBP Exchange Rates Avoid Losses as Bank of England (BoE) News Awaited

Concerns that the UK government has not yet backed away from its hard position on Brexit have not been enough to prevent the Pound from mounting a recovery attempt this week so far.

Speculation that the government may still soften its position, as well as weakness in rival currencies, has left investors eager to buy the Pound back from its worst levels.

The Pound’s rebound has slowed today though, as investors await the Bank of England’s (BoE) September policy decision this afternoon.

There are mixed expectations for the bank’s tone. Some analysts speculate the bank could be optimistic about Britain’s current recovery efforts, but others predict that the bank could signal that more dovishness is ahead.

According to Esther Reichelt, FX Analyst at Commerzbank:

‘The Bank of England can really be quite content with the economic recovery following the corona shock so far,

Unfortunately, nobody really expects this positive momentum to be maintained.

Due to the Brexit uncertainty the BoE is forced to prepare for all eventualities. That also includes the ability to be prepared for possible rate cuts,’

This week’s UK data has had limited impact on the British currency. Yesterday’s UK inflation rate was better than expected but also added to deflation concerns.

AUD Exchange Rates Firmer as Australian Job Market Report Impresses

The Australian Dollar was one of this week’s more appealing major currencies. It has avoided bigger losses against the Pound due to lingering market demand for risk-correlated assets, as well as some of this week’s stronger than expected Australian data.

This morning’s Asian session saw the publication of Australia’s August job market report. The data beat expectations in many key prints.

Unemployment unexpectedly improved to 6.8% rather than the forecast 7.7%, and 111k new jobs were made rather than the expected from of -50k.

Analysts found the data to be optimistic and bolstered hopes for an economic recovery from the coronavirus pandemic.

According to CommSec:

‘There is no doubt that this is a stunning set of job figures – especially considering that the nation’s second largest economy was in lockdown throughout the month

There will still be bumps on the road ahead. However, the hope is that the unemployment rate will now peak well below official forecasts of near 10 per cent.

In fact, for this to occur at least 400,000 jobs would have to be shed by year end – unlikely with Victoria’s restrictions being eased.’

GBP/AUD Exchange Rate Forecast: Brexit Developments and UK Retail Report Take Focus

Most of this week’s movement so far has been driven by shifts in Pound sentiment. With all of this week’s notable Australian data having been published, the Pound will remain the focus for investors through the end of the week.

The Pound will be driven for the remainder of the day by market reaction to the Bank of England’s (BoE) September policy decision.

The bank left monetary policy untouched as expected, but the Pound slipped in the immediate aftermath of the bank’s decision.

Sterling lacks the drive to sustain a bigger recovery unless the Brexit situation improves.

This will leave Pound to Australian Dollar exchange rate investors awaiting potential Brexit news in the coming sessions, though tomorrow’s UK retail sales results could also cause some movement.
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