AUDGBP Still Grinds Lower Ahead of BoE Rates

AUDGBP Sees Further New Lows as Countries Diverge

The AUDGBP exchange rate was 0.05% lower on Tuesday as the pair struggles to find any bullish catalyst. The day ahead is quiet for economic data and tomorrow sees UK PMIs before the Bank of England will discuss interest rates on Thursday. Public sector borrowing for the UK is now at 99% of GDP according to today’s figures.

The AUD to GBP rate was trading at 0.5405 after seeing new yearly lows on the day.

Aussie struggles with iron ore weakness

The Australian dollar is being weighed by a further drop in iron ore prices on Tuesday, as China tightens its oversight of the spot market and targets speculative trading and steel production.

The Aussie dollar has fallen more than 4% from the May highs as investors and central banks turn their attention to the recent rise in inflation and whether that will lead to monetary policy changes.

Tuesday saw another drop in benchmark iron ore futures in China on Tuesday, which cut price rises to 30% in 2021. China is planning to increase inspections into commodity pricing as the country ramps up iron ore imports, but doesn’t want to pay record prices.

UK borrowing dropped to £24.3bn in May as the government spent less money on furlough and saw a boost from VAT and fuel tax, the ONS said. The figures were still the highest on record for May and the UK now sees debt at 99% of GDP after the pandemic spending splurge.

New virus cases dominate in UK and Australia

The UK will see interest rates back on the agenda this week after the recent hike in inflation. The latest figures were 2.1%, which was above the bank’s 2% target for the first time in two years as the economic reopening led to price gains.

The bank’s Chief Economist steps down on Thursday and is leaving with calls for a small cut in the bank’s stimulus spending program.

Haldane has warned that Britain is at the “most dangerous moment” for managing inflationary risks since the UK dropped out of the ERM in 1992, as the economy accelerates out of the recession at record pace. He previously remarked that the “beast of inflation” was stalking the land, with high demand, labour shortages and supply-chain problems risking a “wage-price spiral familiar from the 1970s and 1980s”.

The bank will have to convince investors that their stimulus measures and 0.1% interest rates are warranted as the economy begins to overheat. The US Federal Reserve has said that rates may rise more quickly and the pound could rise further against the Aussie dollar if the BoE takes a similar stance.

The headwind to the pound gains could still be rising virus cases, although Boris Johnson was confident that the July 19th reopening would happen.

The AUD to GBP exchange rate could see further losses if it cannot find support at the current price level.