AUDGBP Tests 0.5600 Once More as BoE Cuts QE

AUD GBP Higher Ahead of Inflation, BoE Governor

The AUDGBP exchange rate was higher on Thursday with the pair once again testing the 0.5600 level. The Bank of England held interest rates at the 0.10% level but announced a $1bn per week cut to its QE bond buying programme. Scotland headed to the polls yesterday and the election votes will be counted at 9am on Friday, so there is potential for further pound weakness in the SNP party can gain a majority. That would see the return of independence chatter and would be yet another weight on sterling.

The AUD to GBP trades at 0.5590 and the Aussie dollar has threatened this level many times over the last few months.

Bank of England cuts QE programme

The Bank of England held interest rates at 0.10% in their latest policy announcement as they gave the economy a sharp 2.2% growth upgrade. After previous forecasts of 5% GDP for the British economy this year, the bank has revised that figure to 7.25% and the country is now expected to reach pre-virus activity 2021, three months ahead of schedule.

The BoE also announced a cut to its bond buying QE programme with the bank cutting weekly purchases from £4.4bn to £3.4bn.

The BoE tried to reassure the market that reduction in stimulus was not, “a change in the stance of monetary policy”. Policymakers are trying to keep traders away from pushing bond yields higher as it could threaten the fragile nature of the recovery in some areas. The BoE joined other central banks in referring to inflation as transitory and said that their 2% inflation target was still a reality over the medium-term. Some traders see the potential for inflation moving there over a shorter time period and that would put pressure on the bank with rates.

Casual jobs cast doubt on Aussie recovery

The Australian jobs market has been recovering at a faster pace than expected, but the latest research suggests that the economy isn’t creating sustainable work.

Up to 60% of new positions created since the start of the pandemic have been casual roles, according to the Australia Institute. The number of Australians working more than one job has also increased at its fastest pace on record.

The RBA has said that it would want to see sustainable strength in the jobs market and these figures suggest that they will hold off on any rate rise, but that could give rise to a stagflation situation.

The research from Roy Morgan has shown Australians were working a record 13 million jobs in April, but this growth was countered by a sharp rise in jobs with low hours.

“Although there was a lot of good news in the April employment figures there is still a large cohort of 2.66 million Australians – 18.3% of the workforce – who are either unemployed or under-employed,” Roy Morgan CEO Michele Levine said.