Pound Australian Dollar Exchange Rate News: GBP/AUD Wavered as BoE Ruled out Emergency Rate Hike

September 27, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Wavered as BoE Ruled out Emergency Rate Hike

Pound (GBP) Wavered on Cautious BoE Stance

The Pound (GBP) failed to rally on Tuesday as investors eagerly awaited an intervention from the Bank of England (BoE). However, the central bank stopped short of raising interest rates and instead opted to wait and see how things are in November.

In the wake of Chancellor of the Exchequer Kwasi Kwarteng’s £45bn unfunded tax cut plan on Friday, the Pound tumbled to historic lows. Sterling saw a brief recovery as murmurs began circulating of the BoE intervening to stem the losses. However, the central bank has since failed to raise the interest rates and instead will wait until November to make a full assessment.

Kwarteng also failed to lift investors’ spirits as he announced he would outline the government’s plans of the debt-reduction strategy, but not until November. The German government have joined the chorus of criticism and voiced their concern over the UK’s risky gamble of cutting taxes and soaring borrowing costs. German Finance Minister Christian Lindner warned:

‘In the UK, a major experiment is starting as the state simultaneously puts its foot on the gas while the central bank steps on the brakes.

‘I would say we wait for the results of this attempt and then draw the lessons.’

Larry Summers, former US Treasury Secretary, has also warned that the Conservative government is ‘utterly irresponsible’ fiscal plans could see the Pound fall below parity against the US Dollar. He was also critical of the passive BoE not making drastic moves. Summers added:

‘The first step in regaining credibility is not saying incredible things. I was surprised when the new chancellor spoke over the weekend of the need for even more tax cuts.

‘I cannot see how the BOE, knowing the government’s plans, decided to move so timidly.’

Australian Dollar (AUD) Subdued amid Souring Global Market Sentiment

The Australian Dollar (AUD) failed to muster up demand on Tuesday as tensions in Ukraine sapped demand for risk-sensitive currencies, including the ‘Aussie’.

Russian Security Council’s Deputy Chairman Dmitry Medvedev continued to pour gasoline on the fire that is the tension surrounding the Ukraine invasion and warned that Russia has ‘the right to use nuclear weapons if necessary’. This comes after Russia’s first mobilisation since World War Two amid plans of annexing Ukraine. Medvedev said in a post on Telegram:

‘Let's imagine that Russia is forced to use the most fearsome weapon against the Ukrainian regime which had committed a large-scale act of aggression that is dangerous for the very existence of our state.’

Meanwhile, also weighing on sentiment, is the reported leaks in the key pipeline to Europe, Nord Stream 1. Sweden’s Maritime Authority has warned that the Russian-controlled pipeline is leaking into the Baltic Sea in two locations. This comes after the problematic function of one of the most crucial gas supplies to Europe.

GBP/AUD Exchange Rate Forecast: Australian Retail Sales to Boost the Aussie?

Looking ahead, the Pound Australian Dollar exchange rate could see further movement if the Australian retail sales print to forecast. If market expectations prove true, an eighth consecutive month of growth could buoy the ‘Aussie’.

Meanwhile, further speeches from the BoE could inspire the Pound. Any details over how the central bank will intervene could see a much-needed boost for Sterling.

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