The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate recovered from overnight losses as economists deemed the US Dollars (USD) sharp decline as overdone. The Pound Sterling to US Dollar exchange rate tumbled to a session low of 1.4792.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate firmed to a session high of 1.9460
The Australian Dollar surged strongly against the US Dollar and the Pound in overnight trading after the US Federal Reserve left interest rates unchanged and dropped a reference to being ‘patient’ on the timing of interest rate hikes.
Economists had been expecting the comment to be dropped from the statement but did not anticipate that the Fed would add that the change in its forward guidance did not mean it has decided on the timing of an initial rate increase.
Fed chair Janet Yellen also warned that the strength of the US Dollar was being detrimental on exports and was forcing inflation lower.
‘Just because we removed the word patient from the statement doesn’t mean we’re going to be impatient. The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labour market and is reasonably confident that inflation will move back to its 2% objective over the medium-term,’ said the Fed statement.
Following the comments, the ‘Aussie’ soared to its strongest level in two weeks against the ‘Greenback’.
Following the release of the statement, the US Dollar tumbled sharply against the ‘Aussie’ and other peers. As the European session began however the US currency rallied strongly as economists deemed the earlier declines as overdone and cited that the markets had over reacted to the Fed comments.
RBA Rate Cut More Likely
The Australian Dollar was also sent lower against the Pound and other peers as the Fed statement caused economists to raise their bets that the Reserve Bank of Australia will make another interest rate cut in either April or May.
‘It would lead to RBA to think, ‘the currency is still higher than we would like, the Fed hasn’t done us any favours, we might be more inclined to get on with the job,’ said Ray Attrill from National Australia Bank.
Also weighing on the ‘Aussie’ was news that iron ore prices fell to a new six-year low in a week in which the commodity’s value has plummeted. Concerns over the slowdown in China, Australia’s biggest trading partner are also weighing.
