Pound Australian dollar Exchange Rate Muted as Ukraine Reports Artillery Fire

February 17, 2022 - Written by John Cameron

STORY LINK Pound Australian dollar Exchange Rate Muted as Ukraine Reports Artillery Fire

Pound Australian dollar (GBP/AUD) Exchange Rate Subdued amid Retreating Risk Appetite

The pound Australian dollar (GBP/AUD) exchange rate has trended sideways today. The Australian dollar (AUD) has been dented by a retreating risk appetite over reports of artillery fire in Ukraine. The pound (GBP) meanwhile has ticked upward amid ongoing expectations of a rate hike by the Bank of England (BoE).

At time of writing the GBP/AUD exchange rate is at around $1.8885, virtually unchanged from this morning’s opening figures.

Pound (GBP) Trends Higher despite Further Brexit Woes

The pound (GBP) climbed against the majority against the majority of its rivals today amid a mixed market mood. Escalating tensions at the Russia-Ukraine border have led to a volatile risk appetite which has benefitted Sterling.

Expectations of a third consecutive interest rate hike by the Bank of England have also likely pushed GBP higher today. Figures on Wednesday showed inflation rising to 5.5% in January, its highest reading since March 1992. The central bank is largely expected to raise rates again at their March meeting.

Analysts are expecting the rate of inflation to continue to rise alongside soaring energy prices until 2023. The prospect of a Russian incursion across the Ukrainian border has kept energy commodity prices high, with any actual military action likely to push them higher still.

Laith Khalaf, AJ Bell’s head of investment analysis, was sceptical of the BoE’s actions however:

‘Inflation is extremely unpredictable, so it’s prudent to acknowledge that it might possibly tail off, though the Bank’s forecasting capabilities haven’t exactly won any awards in recent times.’

Sterling could see Brexit-related headwinds however following a report published on Thursday by the British Chamber of Commerce (BCC). A survey of 1000 firms by the BCC found that only 8% agreed that the post-Brexit EU trade deal was aiding business growth.

The majority of firms disagreed however citing rising costs for companies and clients, increased red-tape, and a drop in EU customers considering UK goods and services.

Australian dollar (AUD) Dented by Risk-Off Trading

The Australian dollar (AUD) climbed against its safer competitors today but failed to gain against its riskier rivals. Global risk appetite has eased following reports of artillery fire directed into Ukraine and likely limited gains for the ‘Aussie’.

Employment figures for January potentially limited losses for AUD on Thursday. The country’s unemployment rate held steady at a 13-year low whilst employment rose by 12.9K, well above forecasts. The uptick to employment in January came as Omicron infections continued to soar across Australia.

The tight labour figures are likely to further increase bets of an early interest rate hike by the Reserve Bank of Australia (RBA). Governor Philip Lowe said last week that a hike could come later in the year should the economy continue to recover as expected.

The central bank has made it clear that they will be looking at labour figures for signals that a rate hike is necessary. The unemployment rate’s level of 4.2% from Thursday’s figures is just above the RBA’s target rate of 4%.

The markets are currently pricing in a rate hike in June for the RBA. Gareth Aird, CBA’s head of Australian economics, is expecting inflation to jump to 3.5% in March. This could further increase calls for an interest rate rise and potentially push AUD higher.

GBP/AUD Exchange Rate Forecast: Will UK’s Retail Sector Recover after Omicron?

Looking ahead to the rest of the week for the Pound, January’s retail figures are forecast to show a strong recovery on Friday. Should they print as expected then Sterling could climb.

The Australian Dollar will see no further significant data this week. The currency is likely to be affected by the price of iron ore and global risk appetite.

Both currencies are also likely to continue to be affected by the developing situation at the Ukraine-Russia border.

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