GBPAUD rates continue to climb forecast remain tight on which bank will move first (Steve Eakins)

AUD GBP Extends Gains Despite UK Employment Gains

GBPAUD rates continued their climb this week as the consensus builds that the Reserve bank of Australia will cut interest rates next week. GBPAUD rates are at multiple year highs now.  However the gamble still remains for traders as to which Central bank will make a change first.  As a result it makes it very difficult to forecast where rates will be in a weeks’ time. The information about what is happening in Australia has been well covered on this site, in this blog I will explain in details what is happening in London.

The Pound has generally been losing recently against most currencies. It is only currencies that are based on raw material exports which has gained.  However GBPAUD rates could be hugely impacted by events in London next week. On Wednesday next week the Bank of England (BOE) is expected to release their “forward Guidance” on the banks policy of asset buying, commonly known as Quantitative Easing (QE).  The consensus is for more later this year so a further fall is expected for Sterling Exchange rates next week.

As a result anyone with Sterling to sell may wish to move sooner rather than later to limit their exposure to a further fall, this news could result in as much as a 2% fall in a day or £5,500 on a AUD $200,000 purchase.

Why is the bank doing Forward Guidance?

The BOE’s target is to boost economic growth and keep inflation low.  One of the ways to do this is by doing QE as it boosts the amount of money in the system which increases the amount that is lent to businesses by banks, this in turn increase their turnover and creates more taxable revenue as well as growth.  When this happens and more money is added to the book the money in the system is worth less and this is reflected as we see the value of the Pound fall.  This also helps the BOE reach its goals by making the UK’s exports more competitive to foreigners as well as making investing in the UK cheaper. So really a weaker Pound helps the BOE reach its targets, it is good for the bank.

It seems highly likely that more QE will as a result come later this year, so if the BOE confirms this the market will fall and weaken the Pound several months early. As a result the BOE is maximising the gains they see as the Pound is weaker for longer.  That is why the BOE is now looking at doing Forward Guidance and why the consensus is for a further fall in the value of Sterling next week.

If you are looking at moving money internationally this will definitely make a difference to your exchange rate over the next few months.  To talk through how this could affect your situation feel free to contact me for more information and a quotation of live exchange rates – [email protected]

Thank you,

Steve Eakins

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