Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate Forecast to Strengthen Even after BoE Warns of Impact of ‘Brexit’ Uncertainty
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate advanced by around 0.5% on Tuesday afternoon.
On Tuesday the British Pound ticked higher versus most of its major peers as traders took advantage of the low trade weighting and comparable US Dollar weakness. This is despite a relatively dovish statement from the Bank of England (BoE) which warned of the detrimental impact of ‘Brexit’ uncertainty on the UK economy.
BoE officials also highlighted concerns regarding the current housing crisis, with the central bank set to tighten buy-to-let mortgages in the hope of reducing the boom of lending to landlords.
‘Heightened and prolonged uncertainty has the potential to increase the risk premia investors require on a wider range of UK assets,’ the BOE’s Financial Policy Committee said in a statement. ‘These pressures have the potential to reinforce existing vulnerabilities for financial stability.’
Whilst many analysts believe a ‘Brexit’ will weaken both Sterling and the UK’s economic growth, this does not necessarily mean the BoE will be forced into loosening monetary policy.
‘The Monetary Policy Committee would not initially lower bank rate on a vote for Brexit, since the BOE would not want to present weaker Sterling as a one-way bet,’ said Goldman analyst Andrew Benito. ‘A rate cut would become a more likely option as the currency stabilizes, while the outlook for inflation remains subdued amid a weaker outlook for activity.’
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is currently trending in the region of 1.8974.
Australian Dollar to Pound Sterling (AUD/GBP) Exchange Rate Forecast to Hold Losses ahead of US Consumer Confidence
Despite the fact that the US Dollar is holding a weak position, the Australian Dollar cooled versus the majority of its most traded currency rivals. The depreciation is mostly the result of damp market sentiment as commodity prices fall and global stock prices endure heightened volatility.
Also weighing significantly on demand for the ‘Aussie’ (AUD) was a statement from BT’s Sydney-based head of fixed income Vimal Gor who suggested that the Reserve Bank of Australia (RBA) will be forced into cutting rates to combat overvaluation.
‘We’re just sitting here on a slow glide path lower in terms of growth; unfortunately at the same time the currency’s appreciating, which exacerbates the slowdown,’ stated Gor. ‘Certainly the second half of the year looks much more likely than a cut in the first half.’
Today’s ‘Aussie’ downtrend will be welcomed by the RBA, but the Oceanic currency has a long way to go before it reaches what is considered appropriate levels. Many believe that the RBA is waiting for the Federal Reserve to hike rates to reduce the Australian Dollar’s value, but global economic cues suggest this could still be some way off.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate dropped to a low of 1.8809 during Tuesday’s European session.
GBP/AUD Exchange Rate Forecast: Yellen Speech to Provoke Volatility
Given that the RBA is thought to be waiting for a Federal Reserve rate hike, this afternoon’s speech from Federal Reserve Chairwoman Janet Yellen certainly has the potential to provoke changes for the GBP/AUD exchange rate. If Yellen is dovish with regards to policy outlook, the Australian Dollar is likely to strengthen considerably. There is every chance that the uptrend will be short-lived, however, as the prospect of delays to a Fed rate hike will likely intensify projections of RBA easing.
With a complete absence of British economic data to provoke volatility tomorrow, the UK asset is likely to continue seeing movement in response to political uncertainty.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate reached a high of 1.9004 during Tuesday’s European session.
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