Stronger UK Growth Data Lifts Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate from Monthly Lows
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate picked up from its one-month low thanks to a surprise upward revision of the third quarter UK gross domestic product.
As the finalised quarterly growth rate clocked in at 0.4% rather than 0.3% this encouraged a greater degree of confidence in the economic outlook, lifting Pound Sterling (GBP) out of its recent decline.
With growth showing a stronger rebound from the second quarter’s contraction the risk of a fourth quarter slowdown appeared to diminish.
However, the resurgence in Brexit-based uncertainty and political anxiety could still see the UK economy falter once again in the final three months of 2019.
Lingering anxiety over the possibility of the UK facing a cliff-edge Brexit helped to limit the upside potential of the GBP/AUD exchange rate at this stage.
Growing Expectations of Bank of England Interest Rate Cut Set to Weigh on Pound
Speculation over the Bank of England’s (BoE) next policy decision could keep GBP exchange rates under pressure in the near future.
With two members of the Monetary Policy Committee (MPC) actively pushing for an immediate interest rate cut, having voted for one in November and December, the odds of easing appear to be on the rise.
If the BoE sees an increasing need to insulate the economy from the risks of a hard Brexit scenario or greater evidence of a domestic slowdown the risk of an imminent interest rate cut is likely to pick up.
As analysts at Danske Bank noted:
‘We also think that it is too early to say Brexit-related uncertainties are diminishing.
‘With CPI inflation below the 2% target and nominal wage growth having peaked, nothing on the price pressure side suggests the Bank of England should worry too much about easing.
‘We stick to our call that the Bank of England is going to cut at its next meeting on Thursday 30 January 2020.’
Unless UK economic data can impress in the weeks ahead the GBP/AUD exchange rate looks set to remain on a weaker footing.
Rising Private Sector Credit Growth Forecast to Shore up Australian Dollar
Monday’s private sector credit data could offer a boost to the Australian Dollar (AUD), meanwhile.
Forecasts point towards a solid monthly uptick of 0.3%, an increase which would suggest a greater level of confidence within the Australian economy.
Evidence that Australian businesses are taking a more optimistic view could encourage bets of a stronger fourth quarter gross domestic product.
As long as markets see reason to expect a resilient performance from the Australian economy this should limit bets that the Reserve Bank of Australia (RBA) could cut interest rates sooner rather than later.
On the other hand, a lack of private sector credit growth may see the Australian Dollar fall sharply out of favour with investors.
Any fresh uptick in market risk aversion could also weigh heavily on the antipodean currency, offering the GBP/AUD exchange rate a boost.