The AUD GBP exchange rate was higher by 1.13% on Tuesday after the Reserve Bank of Australia kept rates steady at 0.1%. The pound sterling was being weighed down by tensions over the Russia and Ukraine situation with the UK promising to use “all the economic and diplomatic tools at its disposal” to stop an invasion of Ukraine.
The AUD GBP exchange rate was trading at 0.5375 ahead of the latest UK GDP tomorrow.
Reserve bank holds rates steady as expected
The Reserve Bank of Australia has held interest rates at a historical low of 0.1% at its last scheduled board meeting of the year.
RBA policymakers decided to keep the cash rate on hold, despite increasing concerns about house prices spiraling out of control. Many have called for the central bank to increase interest rates earlier than the bank’s 2024 goal as property prices outstrip the growth of wages. The latest data showed Australia’s housing market surpassed $9 trillion for the first time ever after a 5% jump in the September quarter.
“Housing prices have risen strongly over the past year, although the rate of increase has eased over recent months,” RBA governor Philip Lowe said.
“With interest rates at historically low levels, it is important that lending standards are maintained and that borrowers have adequate buffers,” Lowe added.
The governor’s comments highlight the desire to continue inflating the housing bubble.
CBI sees costs and shortages weighing on the UK recovery
The CBI has said that UK GDP will increase by 6.9% this year and 5.1% in 2022, but that is lower than the earlier prediction of 8.2% and 6.1%.
By the end of 2023, the economy is expected to still be 3% lower than the pre-virus growth trends, according to the business group.
The latest downgrade came after some “short-term headwinds – including rising costs and shortages” after the CBI’s previous forecast in June. Businesses have struggled with global supply chain issues as well as shortages of workers in key sectors such as haulage and food processing. Higher fuel prices and energy bills have also taken their toll with inflation hitting the highest level in a decade.
CBI director Tony Danker said: “Significant headwinds and rising costs of living threaten the extent of recovery and prospects for economic success.”
CBI chief economist Rain Newton-Smith added: “We expect a pretty firm economic recovery ahead, though understandably the emergence of Omicron poses another downside risk to our forecast.”
Elsewhere, the UK Prime Minster has joined the chorus of leaders threatening action against Russia as the country builds troops on the Ukraine border.
The UK will use “all the economic and diplomatic tools at its disposal” to prevent any invasion of Ukraine, the Prime Minister said.
A key meeting was planned between the US President and Russia’s President on Tuesday, with tensions being a headwind for the pound sterling against the Australian dollar in coming trading sessions.
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