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GBP/AUD Forecast: Bank of England Policy Decision Prompts Pound-Australian Dollar Rally

February 4, 2021 - Written by John Cameron

The highly mixed Australian Dollar is tumbling against the Pound today, and the British Pound to Australian Dollar (GBP/AUD) is recovering some of this week’s losses. Investors took profit from Pound losses following the Bank of England’s (BoE) February policy decision today, but the Australian Dollar is still becoming more appealing in recent sessions as markets calm from the Reserve Bank of Australia (RBA) dovishness seen earlier in the week.

After opening this week at the level of 1.7937, GBP/AUD briefly attempted to advance higher. GBP/AUD even touched on a high of 1.8002, the pair’s best levels in almost two months, before sliding.

This morning, GBP/AUD touched on a weekly low of 1.7795, over a cent below the week’s opening levels, before rebounding. At the time of writing GBP/AUD is recovering losses and is trending in the region of 1.7918.

Pound (GBP) Exchange Rates Recover as Bank of England (BoE) Leaves Policy Frozen

Investors have found the Pound generally appealing this week.

Earlier in the week, the British currency continued to benefit from hopes that Britain’s coronavirus vaccine programmes were further than those of other major economies.

While the Pound’s bullishness on coronavirus vaccine speculation has softened over the past session, other factors continue to support the Pound’s appeal.

Recent UK data has been fairly strong, though concerns of the coronavirus pandemic’s impact on Britain’s economy did worsen slightly amid today’s dire UK car sales report.

Today’s Bank of England (BoE) policy decision was somewhat relieving to some investors though. As the bank announced it was leaving monetary policy frozen and the bank showed no big surprises on its outlooks, the Pound was able to recover some of the losses seen against the Australian Dollar since last night.

However, some of the bank’s outlook did weigh on the Pound’s appeal somewhat, softening demand and limiting today’s GBP/AUD recovery.

The BoE did not take negative interest rates off the table as some had hoped, but it did indicate that they would not be seriously considered for implementation any time soon.

On top of this, the BoE downgraded its UK growth forecasts to predict that Britain’s economy would shrink around 4.0% in Q1 2021. While not a big surprise, it did weigh on Sterling’s outlook somewhat.

According to the BoE:

‘While the scale and breadth of the Covid restrictions in place at present mean that they are expected to affect activity more than those in 2020 Q4, their impact is not expected to be as severe as in 2020 Q2, during the United Kingdom’s first lockdown.

GDP is expected to fall by around 4% in 2021 Q1, in contrast to expectations of a rise in the November Report.’

Australian Dollar (AUD) Exchange Rates Avoid Deeper Losses as ‘Aussie’ Outlook Calms

The Australian Dollar opened the week unappealing, and the currency was shook lower on Tuesday by the latest Reserve Bank of Australia (RBA) policy decision.

The RBA unexpectedly ramped up quantitative easing (QE), in news that caused investors to sell the Australian Dollar in favour of other major currencies.

On top of this, Australia’s latest PMIs were mixed, showing that the nation’s economic activity has seen some underwhelming activity in recent months.

However, market demand for the Australian Dollar has improved slightly since yesterday. Australia’s latest building permits and trade balance stats beat forecasts.

This, as well as returning coronavirus recovery hopes, has helped the Australian Dollar to steady.

While GBP/AUD is rising today, the Australian Dollar’s losses are limited as investors return to the currency. This is preventing GBP/AUD from rising too much.

According to Steven Dooley, APAC Currency Strategist at Western Union Business Solutions:

‘We've seen a good rebound in risk sentiment after a strong rally in US shares overnight,

Asian equity markets are higher and this has been supporting the AUD.’

GBP/AUD Exchange Rate Forecast: Strong Australian Retail Sales Could Cause New GBP/AUD Losses

While the Pound to Australian Dollar exchange rate is recovering much of its weekly losses today, there is still potential for the pair to close the week lower.

Friday’s Asian session will see the publication of Australia’s retail sales results from December. These will be some of the week’s most influential data for AUD investors.

If Australian retail sales results beat forecasts, they could offset some of the concerns recently weighing on the Australian Dollar. This could lead to stronger late-week performance for the Australian Dollar.

Amid a lack of notable UK data due for publication on Friday, the Pound will be driven more by UK coronavirus and vaccine developments.

Bank of England (BoE) Governor Andrew Bailey will also be holding a speech tomorrow. If he makes any surprising comments on the chances of UK negative interest rates, the Pound could see some late-week movement.

Of course, global shifts in risk-sentiment and the coronavirus pandemic will continue to drive the Pound to Australian Dollar (GBP/AUD) exchange rate.
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