GBP to AUD on Back Foot on Rising Odds of BoE Interest Rate Cut

AUD GBP Seeks Support from Australian Employment Data

The pound to Australian dollar exchange rate stands at 1.8813 today on the interbank, at the time of writing. By comparison, back on January 8th, sterling was as high as 1.9154 versus the so-called Aussie, so it’s since weakened by around 3.5 cents, or by 1.78%.

The GBP to AUD interbank exchange rate remains on the back foot, in part because the financial markets are increasingly factoring in the possibility that the Bank of England (BoE) will cut UK interest rates later this month.

According to investors, there’s now a 52% chance that the central bank will reduce UK borrowing costs below their current 0.75%, up from a 5% possibility earlier this month. This is because, since last Thursday, three BoE policymakers have made comments, suggesting that they may vote to reduce UK interest rates, if Britain’s economy doesn’t accelerate in the foreseeable future. For example, BoE Governor Mark Carney said last Thursday that, if UK GDP (Gross Domestic Product) doesn’t accelerate, it could prompt a “relatively prompt response” from the central bank. In turn, this has weakened the pound.

Pound Might Be Affected, if UK Economy Accelerates in Early 2020

However, looking forward, sterling’s value versus the Australian dollar might be affected, if the UK economy grows faster. For example, yesterday we learnt that, between October to November, UK GDP grew by 0.1%, according to the Office for National Statistics, above economists’ forecasts for a 0.1% decline. This is even though Britain’s economy shrank by 0.3% in November.

Similarly, watchdog IHS Markit recently reported that UK business confidence has risen, following the Conservative Party’s victory at the general election last month. In part, this is because the Tories’ win brings a degree of predictability to the Brexit outlook, which in turn might impact the pound.

AUD Could Be Influenced by Bush Fires, RBA Response

In addition, the GBP to AUD interbank exchange rate might also be influenced, by Australia’s continuing bush fires. As the natural disaster burns vast swathes of Australia’s land, households and businesses may respond by spending less.

In addition, the Reserve Bank of Australia (RBA) is increasingly being tipped to cut Australia’s interest rates, down to 0.5%, to support the economy. The RBA’s next meeting is on February 4th, which might affect the AUD.

For more information on AUD exchange rates for an upcoming currency transfer, you can email me, Matt Vassallo, using the form below.