Sterling vs Australian Dollar Rises as RBA Forecast Interest Rate Cut in February

The pound to Australian dollar exchange rate stands at 1.8853 today. By comparison, yesterday, sterling was as low as 1.8774 versus the so-called Aussie, so it’s since strengthened by 0.42%, or over 0.75 cents.

The GBP to AUD interbank exchange rate has strengthened overnight, in part because the Reserve Bank of Australia (RBA) is being increasingly tipped to cut Australia’s interest rates in the coming weeks. In particular, it’s thought that the RBA may reduce Australia’s borrowing costs from their current 0.75%, down to a new all-time low of 0.5%, at the central bank’s next meeting on February 4th. This is because, for several weeks now, bush fires have ravaged significant parts of Australia’s territory, destroying thousands of homes and costing dozens of lives. So while the authorities seek to control and alleviate this natural disaster, the RBA might cut Australia’s borrowing costs, to support the economy. However, lower interest rates tend to weaken the value of the AUD.

GBP to AUD Higher, Even as UK Inflation Weakens in December

The sterling vs Australian dollar interbank exchange rate has risen, even though the UK’s inflation rose less than forecast in December, according to official statistics released today.

UK price pressures increased by 1.3% last month, said the Office for National Statistics (ONS) today, below forecasts for 1.5%, as well as increasingly below the Bank of England’s (BoE) official target of 2.0%. Low price pressures tend to point to a sluggish economy, so this may affect the value of sterling, looking ahead.

Lower UK Inflation Adds to BoE Case to Cut, Might Impact Sterling

In particular, today’s low UK inflation figures add to the BoE’s mounting case to cut UK interest rates. Since last Thursday, central bank Governor Mark Carney, as well as his colleagues Silvana Tenreyro and Gertjan Vlieghe, have all suggested that they might vote to cut Britain’s borrowing costs, if the economy doesn’t pick up in early 2020.

Already at the BoE’s interest rate decision in November, Michael Saunders and Jonathan Haskell both voted to cut UK borrowing costs.

So if three more members join them, of the BoE’s nine-person Monetary Policy Committee, this raises the possibility that the central bank may lower UK interest rates below their current 0.75%, to 0.5%, in the foreseeable future. This too could impact the pound.

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