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BoE Rate Cut Fears Send Pound Australian Dollar (GBP/AUD) Exchange Rate Lower

Bank of England

Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Falls despite Weakened Chance of BoE Cut

The Pound Sterling Australian Dollar (GBP/AUD) exchange rate slumped on Friday, despite better-than-expected UK PMI data. This left the pairing trading at around AU$1.9103.

Today’s UK PMI data caused the chance of a Bank of England (BoE) rate cut to slide further, providing GBP with a temporary boost.

The flash PMI composite rose to 52.4 in January from December’s disappointing 49.3. This was the first time the index has posted growth since August 2019.

Commenting on the data, Chris Williamson, Chief Business Economist at IHS Markit noted:

‘The survey data indicate an encouraging start to 2020 for the UK economy. Output grew at the fastest rate for sixteen months amid rising demand for both manufacturing and services, suggesting business is rebounding after declines seen late last year. Intensifying political and economic uncertainty ahead of the general election has started to ease, encouraging more spending and helping push business expectations of future growth to its highest since mid-2015.

‘It seems likely that the rise in the PMI kills off the prospect of an imminent rate cut by the Bank of England, with policymakers taking a wait and see approach as they assess the performance of the economy in the post-Brexit environment.’

However, markets continued to fret about the chance of a rate cut which still stands at 50%, sending GBP lower.

Coronavirus Sends Investors Away from Riskier Assets

Since markets opened for the day, the ‘Aussie’ has climbed 0.4% against the Pound as investors were still cautious of a UK rate cut despite the optimistic data.

The risk-sensitive Australian Dollar was able to make gains despite the growing fears over China’s Wuhan coronavirus sending investors away from riskier assets.

The death toll rose to 26 with around 830 confirmed cases nationally, concern rises as the virus spreads through China.

A smaller number of cases have been confirmed outside China, and an increasing number of cities within the country have restricted travel.

Commenting on the epidemic, senior FX strategist at Barclays, Shinichiro Kadota noted:

‘The Lunar New Year holiday in China has just begun and they say the virus could be latent for about a week. So at least for the next couple of weeks it will be difficult to gauge how much the new disease will have spread.’

Pound Australian Dollar Outlook: Bank of England Meeting in Focus

Looking ahead to next week, the Pound (GBP) could slump against the Australian Dollar (AUD) as the Bank of England (BoE) monetary policy meeting edges closer.

Despite today’s UK PMI data, markets are still pricing in a 50% chance that the bank is going to cut rates.

If the chance of a BoE rate cut increases and investors continue to remain wary, it is likely the Pound Australian Dollar (GBP/AUD) exchange rate will remain under pressure.