Pound Australian Dollar Exchange Rate News: GBP/AUD Volatile amid BoE Decision

September 22, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Volatile amid BoE Decision

h2>GBP/AUD Exchange Rate Volatile as BoE Raises Rates

The Pound to Australian Dollar (GBP/AUD) exchange rate traded sideways overall on Thursday after fluctuating during opening trade, as GBP investors adjusted to the Bank of England’s (BoE) rate hike decision.

At the time of writing the GBP/AUD exchange rate traded at around AU$1.7003, roughly the same as Thursday’s opening levels.

Pound (GBP) Sheds Gains Following BoE 50bps Rate Hike

The Pound (GBP) initially strengthened against most of its peers on Thursday as GBP investors waited for the BoE interest rate decision.

Investors expected a 75bps hike, which would have aligned with other central banks’ aggressive monetary tightening in recent weeks. However, markets were surprised when the BoE opted for a lesser hike of 50bps, causing Sterling to shed the day’s gains.

In addition, the bank said that the UK is already in a recession, causing concern among GBP investors.

Ian Stewart, chief economist at Deloitte became concerned the inflation and interest rate hikes have become ‘embedded in the system’. He then said that:

‘The Bank is unlikely to stop raising rates until price pressures and labour shortages have eased significantly.’

Alleviating Sterling’s downside somewhat, the BoE did also signal further interest rate rises to come. Markets still expect the BoE to hike the Bank Rate to around 4.8% by June, so the Pound’s losses from the smaller hike were limited.

In response, the Pound experienced mixed trading as markets readjusted to the reduced hike.

Australian Dollar (AUD) Lifts as Market Mood Improves

The risk-sensitive Australian Dollar (AUD) strengthened against most of its peers on Thursday after rebounding during early morning trade.

AUD initially slumped in overnight trade as the Federal Reserve raised interest rates by 75bps, which shook global markets. Hawkish rhetoric from the Fed also bolstered expectations of continued aggressive monetary policy tightening, which was supported by US interest rates being revised higher from 3.4%, to 4.4%.

Markets managed a modest recovery on Thursday morning, perhaps correcting after overreacting overnight. Risk aversion began to ease, and AUD began to strengthen as the market mood improved.

Contributing to the improving market mood were comments from analysts weighing in on Vladimir Putin’s comments from Wednesday.

Putin initialised ‘partial mobilisation’ of military forces and threatened to use nuclear weapons on Wednesday, which spooked global investors. However, commentators have said that mobilisation could take months and Putin is unlikely to resort to nuclear warfare as Russian civilians being to protest.

This seems to have lessened the downbeat mood in European markets, although investors are certainly still cautious.

GBP/AUD Exchange Rate Forecast: More Volatility Ahead?

Looking ahead to Thursday afternoon, the GBP/AUD exchange rate could continue to waver as markets digest the BoE’s 50bps rate hike.

Whilst investors readjust their trading to align with the decision, Sterling could wobble.

Meanwhile, AUD trade could be mainly driven by the market mood. If risk sentiment improves, AUD could gain ground. However, if sentiment sours then the ‘Aussie’ could slip.

Looking ahead to Friday, the flash PMIs for the UK and Australia are due. Overall, Australian private sector activity is forecast to slow to near stagnation, which could hurt AUD overnight. Business activity in the UK is expected to improve slightly but remain in contraction. Such a result would likely weigh on GBP, trimming any overnight gains.

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