Pound Australian Dollar Exchange Rate News: GBP/AUD Stumbles as Investors Await BoE Interest Decision

March 17, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Stumbles as Investors Await BoE Interest Decision

GBP/AUD Edges Slightly Lower as Investors Await BoE Interest Decision

The Pound Australian Dollar (GBP/AUD) exchange rate is slipping this morning as investors await the Bank of England’s (BoE) interest rate decision.

At the time of writing, the GBP/AUD exchange rate is trading at approximately AU$1.7966, roughly down 0.3% from today’s opening levels.

Pound (GBP) Subdued as BoE Predicted to Hike Interest Rates to Pre-Pandemic Levels

The Pound (GBP) is down against the Australian Dollar (AUD) as investors await the BoE’s interest rate decision today.

Largely priced-in, the BoE is expected to raise interest rates by a quarter of a percent for the third time since the pandemic: raising rates from 0.5% to 0.75%.

Should rates rise as predicted, it will return them to pre-pandemic levels as the BoE seeks to ease soaring inflation. In January, inflation reached 5.5% and is expected to reach 7% in April.

Geopolitical uncertainty is likely to cause inflation to remain high for the foreseeable future.

The Guardian’s economic writer, Larry Elliott, wrote:

‘…some members of the [Monetary Policy Committee] are jittery about higher prices generating pressure for higher wages. The fear is that in a tight labour market, a wage-price spiral will set in.

‘Others on the committee are more concerned about the economy hitting the wall in the second half of 2022. Their fear is that over-aggressive interest rate increases will help push the economy into recession.

‘Before the Russian invasion of Ukraine, there had been speculation the Bank might get more aggressive with a half-point rise this month. That now looks less probable, although it cannot be entirely ruled out.’

In turn, this is likely to be capping investors’ aggressive bets today and limiting the Pound’s potential.

However should the BoE’s forward guidance be broadly hawkish in tone, we could see Sterling surge this afternoon.

Australian Dollar (AUD) Climbs on Geopolitical-Driven Risk-On Sentiment

The Australian Dollar (AUD) is gaining ground against the Pound (GBP) today as 'progress’ in Russia-Ukraine peace talks helps to improve risk appetite.

There has reportedly been a 15-point plan drawn up to end the war between the two countries. This includes a ceasefire, a withdrawal of Russian military and Kyiv’s agreement to accept neutrality.

A senior adviser to Volodymyr Zelensky said:

‘The only thing we confirm at this stage is a ceasefire, withdrawal of Russian troops and security guarantees from a number of countries.’

Furthermore, Australian unemployment fell further than expected during overnight trade, boosting AUD.

February’s figures slipped to 4%, slightly lower than the predicted 4.1% and January’s print of 4.2%: the lowest jobless rate since August 2008.

Bjorn Jarvis, the head of labour statistics at the ABS, said:

‘While hours worked rebounded in February, they were still around 0.5% below December, and also still slightly below (0.2%) the pre-Delta period high of May 2021, reflecting a second month of impacts associated with the Omicron variant.

‘The number of employed people working no hours over the entire week due to illness or sick leave was around 80% higher than what we would usually see in February, having been around triple the usual level in January.’

GBP/AUD Exchange Rate Forecast: BoE Takes Centre Stage

Today, the BoE’s interest rate decision will be the main driving force for Pound movement. Should MPC deliver some hawkish forward guidance, it may bolster Sterling.

Meanwhile, the Russia-Ukraine war will also continue to steer volatility into the market. If peace talks progress further, it is likely to support the Pound Australian Dollar exchange rate.

Due to an absence of UK and Australian economic data scheduled for the rest of this week’s session, both GBP and AUD will be susceptible to risk appetite and other external factors.

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TAGS: Pound Australian Dollar Forecasts