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Pound Australian Dollar Exchange Rate to Sour Further on UK Recession Risks?

Pound Australian Dollar Currency Forecast

GBP/AUD Exchange Rate Tumbles on Dovish BoE

The Pound Australian Dollar (GBP/AUD) exchange rate is slipping as a cautious Bank of England (BoE) was compounded by rising UK recession risks.

At time of writing the GBP/AUD exchange rate is around $1.9536, a 0.30% fall from this morning’s opening levels.

Pound (GBP) Sours as Economic Outlook Darkens

The Pound (GBP) is struggling for demand again today, as a myriad of headwinds are sapping demand for Sterling.

Without any economic data to influence things, GBP investors are still preoccupied by yesterday’s dovish speech from the Treasury Select Committee meeting in parliament. BoE Governor Andrew Bailey tempered inflation expectations as he conceded that headline consumer price inflation showed a ‘marked’ fall. He added:

‘There was a period where it seems to me it was clear that rates needed to rise. (And) the question for us was how much and over what timeframe, but we’re not I think in that phase anymore. I think we are much nearer now to the top of the [interest rate] cycle.’

By pouring cold water on further tightening prospects from the BoE, GBP investors appear to be dismayed. This was further cemented by known dovish BoE policymaker Swati Dhingra, who followed it by saying:

Policy is already sufficiently restrictive, and the lagged effects of further tightening pose serious risks of output volatility in order to make a small dent on inflation.

‘While each additional increase in Bank Rate intensifies the effect on currently exposed subsets of the economy – for example those rolling off fixed-rate mortgages – it takes time for the breadth of the effects to increase.’

Looking ahead, and with rising recession woes combined with the central bank edging ever closer to their interest rate peak, Sterling could remain firmly under pressure.

Australian Dollar (AUD) Propped up by Hawkish RBA

Meanwhile, the Australian Dollar (AUD) is finding moderate support as outgoing Reserve Bank of Australia (RBA) Governor Philip Lowe buoyed investors’ spirits.

On the back of disappointing Australian and Chinese trade data, a narrower-than-expected surpluses sapped demand for the ‘Aussie’ and weighed heavy. Australian goods and services exports also declined further than expected as it fell 2% MoM.

However, in his final speech as RBA Governor, Lowe kept the door open to further tightening, if required, which boosted the Australian Dollar. With inflation still proving sticky, Lowe said:

‘While recent data provide some comfort on this front, we need to remain alert to this risk for if it were to materialise, inflation would become sticky, which would require tighter monetary policy and more economic pain later on.’

Looking ahead, and without any major data to see the week out, the risk-sensitive ‘Aussie’ could be left to trade on risk appetite, as well as interest rate hike expectations.

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