AUD GBP Mixed After Bank of England Rate Meeting

AUD GBP Erases Earlier Losses to Point Higher

The AUD GBP exchange rate was flat on Thursday as the Aussie dollar pared earlier gains. The Bank of England maintained record low interest rates and refused to cut stimulus bond-buying this month. The Australian dollar is still feeling the pressure of the Evergrande default risk and headlines for the company were mixed on Thursday.

The AUD to GBP exchange rate is trading at the 0.5315 and the UK also saw its PMI economic figures dipping for September as the rebound slows.

Bank of England warns of inflation above 4% this winter

The Bank of England held its latest monetary policy meeting and warned that inflation will rise above 4% by the end of the year, due to the recent energy price shock.

The Bank said the surge in gas prices are an ‘upside risk’ to previous inflation forecasts, which were set in August and predicted 4% inflation. The Monetary Policy Committee also warned that inflation could remain above the 4% level into the second quarter of next year.

Nine UK energy firms have gone bust after gas prices rose 250% since the start of the year prompting potential government bailouts.

The minutes of the MPC meeting said:

“CPI inflation was expected to rise further in the near term, to slightly above 4% in 2021 Q4, owing largely to developments in energy and goods prices.

The material rise in spot and forward wholesale gas prices since the August Report represented an upside risk to the MPC’s inflation projection from April 2022, and meant that CPI inflation could remain above 4% into 2022 Q2, all else equal.”

The MPC voted by 9-0 to leave the interest rate at just 0.1%, while they also voted to maintain quantitative easing bond-buying at £895bn. However, two of the bank’s policymakers, Dave Ramsden and Michael Saunders, voted against the plan. Both wanted to see the QE program finish early, by reducing the amount of UK bond buying from £875bn to £840bn.

Evergrande fears still affecting the Aussie dollar

Mixed reports in the financial press saw further swings in the prospects of Chinese conglomerate Evergrande Group.

The market rallied when Bloomberg reported that China had told Evergrande to avoid a near-term dollar bond default. That gave investors hope that the Chinese government would be there to back the firm up.

But that was followed by a later headline related to a Wall Street Journal piece, which said that the country was “making preparations for Evergrande’s Demise”. Anonymous sources signaled “a reluctance to bail out the indebted property developer while bracing local authorities for the economic and social fallout.

For Australia and the dollar, the housing developer’s woes is sending shockwaves through the iron ore market as all of its current projects in China were halted. Australia’s economy has relied on record iron ore prices and exports to buffer the country from the government lockdowns.

The Australian dollar versus the pound is trading halfway between the yearly lows at 0.5220 and the recent rally to almost 0.5400.