The AUD GBP exchange rate has both the Reserve Bank and Bank of England interest rate meetings this week after the recent rebound. The market is expecting a 0.15% rate hike from the BoE, while there is also ‘considerable pain’ in the market with the recent bond rally. The RBA failed to defend its 0.1% level after previous attempts at yield curve control.
The AUD GBP exchange rate is trading at 0.5500 ahead of the RBA meeting.
‘Considerable pain’ seen in the bond market
Deutsche Bank analyst Jim Reid said in his daily briefing:
Reid said: “Absolutely zero idea what they are going to do tomorrow which should help you all tremendously but their absence again this morning gives a decent indication. I was taught economics in an era where central banks liked to keep an element of mystery and surprise. As such I’ve always disliked the forward guidance era as it encourages markets to pile on to much riskier, one way positions that a normally functioning market should naturally allow. But to go from forward guidance to silence is a recipe for huge market turmoil if the facts change.”
Reid also commented on recent shock unwinds in the bond market and added:
“It’s unclear if the full implications of last week’s carnage at the global front end has yet been cleared out. There is lots of speculation about large unwinds, big stop losses etc. Liquidity was also awful last week. Much might depend on central banks this week. Make no mistake though there is considerable pain out there.”
His comments refer to the repricing of bond yields as central banks bring their rate hike plans forward due to higher inflation.
UK factory output slows, prices surge
British factories have seen output growth slowing and costs soaring in October as they struggled to cope with supply chain problems, the IHS survey said Monday.
The overall IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index rose for the first time in five months to 57.8 in September. This was a slight improvement on the preliminary estimate.
But the output index fell to 51.3, which was the weakest level in eight months, from 52.7 in September.
Prices are surging and giving businesses a headache as the index showed the largest price jump in the survey’s 20-year history.
Some companies have reported that overseas customers have cancelled or postponed orders due to port delays and freight capacity problems.
“This low-growth environment is occurring in tandem with a severe upshoot in inflationary pressures, with manufacturers reporting both a near-record increase in input costs and record rise in selling prices,” IHS Markit director Rob Dobson said.
There were more positive signs from the survey with a marginal gain in new order growth and increased hiring.
“However, these positives could potentially be at risk if supply-chain, Brexit or COVID headwinds rise during the coming months, especially if high inflation leads to higher borrowing costs,” Dobson said.
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