Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Muted as Riskier Currencies Steady
The Pound Sterling Australian Dollar (GBP/AUD) exchange rate remained flat as demand for safe-havens slipped, leaving the pairing trading at around AU$1.9274.
The risk-sensitive ‘Aussie’ steadied on Wednesday as the risk-off mood amongst investors calmed as they awaited further news on the Wuhan coronavirus.
Markets waited for further indication on how much economic damage the recent outbreak of the virus would cause.
However, moves were slight as it remained clear traders still remained on edge as more than 130 lives have now been claimed by the virus.
According to Chris Weston, Head of Research at brokerage Pepperstone:
‘The way risk is trading, people are saying that perhaps we reached peak worries, peak fear.’
Australian Dollar (AUD) Flat as Core Aussie Inflation Disappoints
The ‘Aussie’ remained flat today after key data revealed Australian inflation edged higher in the final three months of 2019.
The Consumer Price Index (CPI) rose by a higher-than-expected 0.7% in December, while annual inflation increased by 1.8%.
However, core inflation was left subdued at 1.6% despite three interest rate cuts from the Reserve Bank of Australia (RBA).
Core inflation being stuck below target for the fourth year in a row also suggests the RBA may need to act further to revive consumer prices.
Commenting on this, NAB senior economist, Ivan Colhoun said:
‘There is little evidence of either tax cuts or interest rate reductions feeding into increased consumer spending.
‘We continue to see two further rate cuts this year and the possibility of quantitative easing if the unemployment rate deteriorates more quickly than we forecast.’
Sterling (GBP) Muted Ahead of Bank of England (BoE) Meeting
The Pound remained muted against the ‘Aussie’ on Wednesday as investors remained cautious ahead of Thursday’s Bank of England (BoE) meeting.
Markets continue to price in the chance of a BoE cut at around 50:50, with it being too close to call.
Better-than-expected job creation and PMI data last week could provide the bank with reason to leave rates on hold.
However, many still expect the Monetary Policy Committee will slash rates to 0.5%.
Commenting on this, Robert Wood, chief UK economist at Bank of America noted:
‘We had thought that the MPC might wait until a few months after the general election, or the chancellor’s first Budget, to make a decision on interest rates.
‘But it seems as though they might want to offer a helping hand to the economy a bit sooner than expected.’
Pound Australian Dollar Outlook: BoE in Focus
Looking ahead, the Pound (GBP) could slide against the Australian Dollar (AUD) following tomorrow’s Bank of England (BoE) meeting.
If the bank slashes interest rates for the first time since July 2016, Sterling sentiment will plummet.
Meanwhile, the ‘Aussie’ could edge higher if investors’ demand for safe havens continues to decrease despite Wuhan virus fears.
If investor risk appetite increases at the end of the week, the Pound Australian Dollar (GBP/AUD) exchange rate will slump further.