Sterling has dipped slightly against the Australian Dollar during Tuesday’s afternoon session, seeing the previous 0.8% advance slip to 0.6%.
This comes amid growing concerns that the ‘Brexit effect’ and UK economic instability could be having an increasingly detrimental impact on national sectors like construction and manufacturing.
(First published 11:17, July 4th, 2017)
The Pound has recently climbed by 0.8% against the Australian Dollar, a strong performance brought on by a slump in Australian economic confidence.
Looking ahead, the Pound may plummet if it looks like the UK is at risk of a bank-triggered financial crisis.
GBP Outlook: BoE FPC Minutes show Concerns about UK Lending
A recent UK data release has provided insight into the UK’s banking sector, as well as highlighting Bank of England (BoE) concerns about financial institutions.
This has been the BoE Financial Policy Committee (FPC) minutes for June. Notably, the minutes show that BoE officials are worried that the UK faces problems from high levels of lending and borrowing.
With UK interest rates at a historic low and wages growing at a glacial pace, consumers have been abandoning savings accounts and taking out loans.
The BoE’s issue with this is that if it raises interest rates, UK consumers could find it much harder to pay back loans and mortgages.
Commenting on the situation has been Daily Telegraph Economics Correspondent Tim Wallace;
‘ [BoE] officials are worried that debt is growing at an extraordinary pace, which can only be achieved if lenders are taking more and more risks and giving out loans to households that are less able to afford the burden.
Ultra-low interest rates could also have lulled banks into a false sense of security, as customers can afford their debts right now but might get into trouble when rates rise’.
In the near-term, the main trial for banks will be a stress test in September. As a sign of the BoE’s focus on the issue, the test has been brought forward from November.
If it looks like banks could stave off any sudden shift in economic conditions then the Pound may appreciate, while any alarming findings from the test may have an adverse impact on the GBP AUD exchange rate.
RBA Rate Hike Hints may Trigger Yearly Highs for AUD GBP Exchange Rate
The recent Australian Dollar crash against the Pound has been triggered by a disappointing Reserve Bank of Australia (RBA) meeting.
Economists had expected the RBA to adopt a hawkish stance on monetary policy, only to be met with disappointment.
Issuing a boilerplate statement, RBA officials said;
‘Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time’.
Essentially, this means ‘business as usual’ at the RBA, with no signs on the horizon of policy tightening in the form of an interest rate hike.
If the RBA’s tone on future policy decisions does turn more hawkish than dovish then the Australian Dollar could rally. For context, the last RBA interest rate hike was in November 2010, so many economists see a hike as something a long time coming.
Recent Interbank GBP AUD Exchange Rates
At the time of writing, the Pound to Australian Dollar (GBP AUD) exchange rate was trading at 1.7002 and the Australian Dollar to Pound (AUD GBP) exchange rate was trading at 0.5881.
Comments are closed.