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Pound Australian Dollar Exchange Rate News: GBP/AUD Faces Headwinds Ahead of BoE’s Interest Rate Announcement

May 4, 2022 - Written by John Cameron

GBP/AUD Loses Ground Ahead of BoE’s Interest Rate Decision

The Pound Australian Dollar (GBP/AUD) exchange rate is falling today as markets anticipate a dovish interest rate hike from the Bank of England (BoE).

At the time of writing, the GBP/AUD exchange rate is trading at approximately AU$1.7532, roughly down 0.4% from today’s opening levels.

Pound (GBP) Slips as GBP Investors Await BoE Interest Rate Announcement

The Pound (GBP) is falling against the Australian Dollar (AUD) as GBP investors brace for the BoE’s latest interest rate decision.

The BoE is widely expected to hike interest rates to 1% from 0.75% when it concludes its May policy meeting tomorrow. Barring any surprises, this will be the first time interest rates have risen to this level in 13-years.

However, because this hike is mainly priced-in, any resulting movement in GBP exchange rates are likely to be governed by the BoE’s forward guidance.

In light of recent underwhelming UK data, analysts are expecting a dovish outlook from the bank which is likely to weaken the Pound.

Elsewhere, Sterling is under pressure from UK politics as local elections take place tomorrow.

Should the Conservative Party lose a significant number of seats, it may raise fresh questions regarding Boris Johnson’s premiership and further unnerve GBP investors.

This comes amid the UK’s cost of living crisis as household incomes struggle to keep up with soaring inflation and rising energy bills.

According to Ed Miliband, the shadow climate change secretary ‘…the government is negligently failing to do its job for the people of this country.’

As the UK’s cost of living crisis and political uncertainty continues, it is likely to be weigh on GBP exchange rates for the rest of today’s session.

Australian Dollar (AUD) Climbs on Strong Retail Sales Data

The Australian Dollar (AUD) is rising against the Pound (GBP) today in response to better-than-expected retail sales data.

The preliminary figures for March exceeded market forecasts of 0.5% and reported a 1.6% expansion, reaching a record high of AU$33.6bn.

Although this is a slight decline from February’s 1.8% gain, it is the third consecutive increase which is boosting the ‘Aussie’s appeal.

Director of Quarterly Economy Wide Statistics, Ben James, said:

‘Rising prices, combined with the continued easing of restrictions across the country has led to rises in turnover in all three months of the March quarter.

‘Consumer spending rose across both discretionary and non-discretionary industries. Following flooding in late February and early March along the east coast, impacted businesses regained lost turnover from forced closures as consumers restocked pantries.’

Furthermore, April’s final services PMI reading printed at 56.1. This confirmed the service sector expanded for the third consecutive time in Australia.

Namely responsible for the upbeat data was the easing of Covid-19 restrictions. In turn, this allowed borders to reopen and foreign demand to flourish.

As a result, the positive figures have presented a strong economic recovery in Australia and is bolstering demand for AUD.

GBP/AUD Exchange Rate Forecast: Will the BoE Deliver Dovish Forward Guidance?

Looking ahead, the BoE’s interest rate decision is likely to be the key catalyst for movement in the Pound Australian Dollar exchange rate.

If the central bank strikes a dovish tone as expected, it may undermine Sterling.

For the rest of today’s session, a lack of notable UK economic data will leave the Pound subjected to market mood, UK political uncertainty and the Ukraine crisis.

Into tomorrow, the Australian Dollar may be supported by the trade figures for March: the trade surplus is forecast to increase to AU$8.5bn.

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