AUD GBP on the Retreat with BoE Rate Meeting Due

AUD GBP on the Retreat with BoE Rate Meeting Due

The AUD GBP exchange rate was lower for a second day as traders unwind their bullish rate hike bets on the RBA. Higher services PMIs from the UK economy and house prices at a record boosted the pound sterling. Aussie dollar was down by -0.34% after a steep fall on Tuesday.

The AUD GBP exchange rate is trading at 0.5435 ahead of the BoE meeting.

Stick or twist from the Bank of England

The Bank of England holds its long-awaited November meeting today where traders will get some clarity on their recent rate hike bets.

Markets have fully priced in a 0.15% interest rate hike for the UK central bank and the day could bring volatility if the bank’s decision or outlook differs.

ING analysts said:

“Markets have to get used to a world where the range of possible economic outcomes is much wider than over the past decade, ranging from persistent inflation to a central bank-induced recession.”

They added:

“…acknowledgement by the RBA that hikes are coming earlier than the previously signalled timeline, and the abandonment of of the 0.1% yield curve control target, are signs that a hawkish move can contribute to a re-steepening of yield curves. The question is whether the BoE and Fed can afford such a change of communication. In the case of the BoE, a hike would be a step in this direction.”

The market was waiting for a Federal Reserve meeting last night and the BoE meeting will add a lot of clarity for traders on the path of central banks. That will likely bring volatility to the pound sterling into the end of the week.

The UK economy got a boost from higher services PMI figures and news that the housing market had average prices above £250k for the first time ever. Markets had worried that the recent end of stamp duty holidays in September would affect mortgage uptake but that wasn’t the case. However, it is possible that the recent talk of interest rate hikes saw some buyers trying to capture the historically low interest rate for one last time.

Tomorrow will see construction PMIs for the UK but that will be the last of the economic data for the week. The AUD v GBP will take its cue from the BoE after a disappointing RBA meeting.

Australian construction also seeing supply chain constraints

Despite the stubbornness of the Reserve Bank, Australian construction is still seeing constraints from supply chains and prices.

Construction activity in both Australia and New Zealand have continued in the third quarter but longer lead times and rising freight costs are causing supply issues and labour shortages, while pushing up costs for steel, timber and electrical materials, says consultant Turner & Townsend.

Australia’s ocean freight index rose by 38.6% in the three months to June, they said. The company also predicts that non-residential project costs in 2021 could rise 5% in Auckland and Perth, 4.5% in Brisbane and Sydney, and 4% in Adelaide, Christchurch, and Melbourne.

But they are still positive on the public sector, with the private sector expected to recover in line with international borders reopening.

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