Australian Dollar Edges Higher Against the British Pound After BoE Rate Cut and UK Budget

AUDGBP Strengthens Against but AUD Lower Against USD and EUR

The Australian dollar was 0.25% higher versus the Pound after the Bank of England made an emergency 0.50% interest rate cut. The move was aimed at cushioning the UK from the Coronavirus impact on the economy.

The AUD to GBP exchange rate was trading near 0.5050 and Aussie bulls will be hoping for a stronger move above that level, which has provided support since January.

BoE slashes rates ahead of the UK budget

Today’s emergency rate cut announcement was made just ahead of the first budget from Boris Johnson’s new chancellor Rishi Sunak. The move has cleared up uncertainty over the Bank of England’s planned actions and matches the 0.50% rate cut seen by the US Federal Reserve.

Outgoing governor Mark Carney said the impact of the virus, “could prove large and sharp but should be temporary”.

The rate cut sees the UK interest rate at 0.25%, which is lower than the 0.50% seen in Australia’s economy but the Reserve Bank is expected to make another cut at their next meeting to match the latest UK figure. With interest rates at the same level, traders are allowing recent strength in the UK economy and fears over China to guide the recent strength of the Pound. This could change if the UK sees a further spread of the virus.

Johnson’s cabinet sees first budget announced

Prime Minister Boris Johnson has seen the release of the first budget under his leadership with chancellor Rishi Sunak delivering the budget to Parliament today.

Among the headline numbers were £30 billion to fight the Coronavirus and £600 billion to infrastructure projects. Smaller moves were announced to freeze fuel and alcohol duties, alongside a plan to abolish business rates for small shops.

The government are hopeful that the interest rate cut combined with the spending package will soften the blow of any virus impact, however unless there are large scale shutdowns such as those seen in shutdowns then it’s unlikely that there will be a real slowdown.

We are also approaching the month of April which is generally the end of the flu season in the US and UK, which could improve the situation. The destination of the AUD to GBP currency pair will likely be determined by the effects of the virus on the UK as China seems to have seen cases slow.

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