Pound Australian Dollar Exchange Rate Climbs amid Turmoil for UK PM Johnson

February 1, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate Climbs amid Turmoil for UK PM Johnson

Pound Australian Dollar (GBP/AUD) Exchange Rate Climbs ahead of BoE Rate Meeting

The Pound Australian Dollar (GBP/AUD) exchange rate fell overnight following the Reserve Bank of Australia’s (RBA) interest rate decision, but has continued to climb today as expectations of a rate hike by the Bank of England (BoE) have boosted Sterling.

At time of writing the GBP/AUD exchange is at around $1.9063, which is up around 0.2% from this morning’s opening figures.

Pound (GBP) Boosted by BoE Rate Hike Expectations despite Uproar over Sue Gray Report

The Pound (GBP) has climbed against many of its rivals this morning despite the political turmoil surrounding Prime Minister Boris Johnson continuing to generate significant headwinds for Sterling. Expectations of an interest rate hike at the BoE’s Thursday meeting may be helping boost GBP however.

The publication of the hotly anticipated Sue Gray report revealed 16 occasions in which lockdown regulations were breached at 10 Downing Street. The report was published in a limited form due to the Metropolitan Police’s ongoing investigation into 12 of the 16 gatherings.

The report condemned ‘failures of leadership and judgement’ within the PM’s office with Johnson coming under particular scrutiny. The Pound is likely to continue to struggle as Johnson fights to stay in office.

As investors await the BoE’s interest rate decision on Thursday, figures published by market researcher Kantar on Tuesday revealed that grocery price inflation hit 3.8% in January. The increase is set to add roughly £180 to the average household’s bills and pile additional pressure on individual’s finances during a cost of living squeeze.

In response to these soaring prices and UK inflation hitting its highest point since March 1992, investors and markets are expecting the BoE to announce an interest rate hike of 0.25% this week. Analysts are warning however that a rate rise could harm businesses already struggling to recover from the impact of the Omicron variant.

Steffan Ball, chief UK economist at Goldman Sachs, stated that a rate hike was highly likely:

‘We now expect the Bank of England to hike in back-to-back meetings through May, in order to demonstrate to markets and businesses that the MPC is serious about the inflation target.’

A rate rise by the BoE could see Sterling boosted, although as markets have largely already priced in the rate rise the currency’s gains may be limited.

Australian Dollar (AUD) Drops as RBA Leaves Rates Unchanged

The Australian Dollar (AUD) rose against many of its rivals last night ahead of the Reserve Bank of Australia’s (RBA) decision last night, but then fell sharply after the central bank decided to leave interest rates unchanged. The ‘Aussie’ has continued to tick down since the opening of the European market session.

The RBA decided to leave interest rates unchanged last night but committed to ending its bond buying program. Governor Philip Lowe pushed back against expectations of an early rate hike, which some traders had been anticipating and could be responsible for AUD’s fall following the decision.

Lowe stated that the central bank would be closely watching factors such as supply chain disruptions and wage growth to determine whether a rate rise would necessary in 2022.

Losses for the Australian Dollar (AUD) could be underpinned by the ongoing rise in iron ore prices, as predicted strong demand following Chinese Lunar New Year celebrations helped boost the commodity.

GBP/AUD Exchange Rate Forecast: Will BoE Raise Rates as Expected?

Looking to the week ahead, GBP investors will be keenly awaiting the BoE’s interest rate decision on Thursday. Ahead of this, the final reading of January’s Markit PMIs on Thursday is forecast to drop which could push Sterling down.

For the Australian Dollar, Wednesday’s speech for RBA governor Philip Lowe and Friday’s monetary policy statement from the central bank could prompt upward movement in the currency should the RBA give any hawkish signals.

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