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GBP/AUD Exchange Rate Nosedives on Disappointing UK GDP Figures, is a BoE Rate Cut Now Inevitable?

Bank of England

GBP/AUD Exchange Rate Tumbles on Abysmal UK GDP Print

The Pound Australian Dollar (GBP/AUD) exchange rate is languishing at a two-week low this morning, in the wake of some disappointing data from the UK.

At the time of writing the GBP/AUD exchange rate is currently trading at around AU$1.8816, down roughly 0.6% from today’s opening rate.

Pound (GBP) Tumbles as Weak GDP Figures Stoke BoE Rate Cut Expectations

The Pound (GBP) has gotten off to a poor start this week, in the wake of the UK’s latest GDP print.

According to data published by the Office for National Statistics (ONS), UK economic growth slumped from 0.1% to -0.3% in November, missing expectations GDP would stagnate.

The poor GDP figures come on the back of recent comments from Bank of England (BoE) Governor Mark Carney, who warned the bank would act ‘promptly’ if weak UK economic growth persisted.

In light of this, today’s GDP figures have heightened expectations the BoE will cut interest rates in the near-term.

Matthew Cady, investment strategist at Brooks Macdonald suggests this cut could even come this month:

‘UK GDP for November has come in at negative -0.3%. This is quite a bit weaker than had been expected. Consensus had been looking for zero growth month on month.

‘The weaker GDP print today puts beyond doubt that the next Bank of England meeting at the end of January is going to be a ‘live’ meeting.’

Further weighing on Sterling sentiment were the accompanying industrial production figures, as they showed factory output plummeted from 0.4% to -1.2% in November, a significantly worse drop than the modest 0.1% contraction forecast by analysts.

Australian Dollar (AUD) Buoyed as Markets Look to Signing of US-China Trade Deal

The Australian Dollar (AUD) looks set to enjoy some considerable support this week as investors go risk-on ahead of the signing of a ‘phase one’ trade deal between the US and China.

The signing of the preliminary deal will mark a major de-escalation of tensions between the two powers, and should help to buoy the trade sensitive ‘Aussie’.

However the attention will quickly turn to talks of ‘phase two’, which are expected to get underway alongside the signing.

Economists warn the next stage of negotiations will prove much more difficult as they address issues such as protections for intellectual property and state aid.