AUD GBP Lower with Budget and UK Rates Ahead

AUD GBP Higher Again Despite WA Shutout

The AUD GBP exchange rate was lower after the pound sterling was boosted by a healthy jobs report. Payrolled staff jumped by a record amount to continue the post-furlough strength. However, there are fears of a return to furlough if the virus variant spread continues. The UK government’s Plan B was set to be voted on yesterday with a threat of 77 Tories revolting.

The AUD GBP exchange rate was trading at 0.5375 with the Aussie budget and Bank of England meeting ahead.

Bank of England expected to wait, IMF urges against ‘inaction’

The Bank of England are expected to avoid an interest rate rise tomorrow at the final meeting of the year. The BoE were on course to raise rates in December but that has faded with the government’s strong reaction to the virus variant.

Meanwhile, the IMF has urged the bank to avoid ‘inaction’ as it battles inflation. Speaking at the release of its annual UK report, the IMF said:

“Monetary policy also has a key role to play in managing volatility but could face difficult trade-offs”.

“It would be important to avoid inaction bias, in view of costs associated with containing second-round impacts. Careful communication would be needed to lay the groundwork with markets for potentially more frequent policy moves,” it added.

The BoE was also urged to “take the earliest opportunity to put the quantitative tightening program onto a pre-programmed course and for the Bank to give guidance on the framework to be used to manage the process back towards the steady state balance sheet”.

The IMF kept its earlier projections that growth would be 6.8% this year and 5% in 2022. Inflation is predicted to hit 5.5% next year, but the BoE may not budge too far with rates.

The IMF also said the UK should be prepared to reinstate the furlough program if the virus spread continues, urging a “a furlough scheme and targeted support to the most vulnerable households and small businesses”.

Australian treasurer’s budget due out tomorrow

Treasurer Josh Frydenberg will deliver an update for the federal budget on Thursday, with expectations he’ll reveal an improved budget position up to A$100 billion better off.

Deloitte Access Economics’ Chris Richardson said:

“It’s a pretty remarkable result, but it comes down to the basic thought that the Australian economy, like the world economy, was never broken, it was closed down,” he told Sky News Australia.

“And if you can get ahead of COVID, then you can open up, the economy comes back, and if the economy comes back, the budget comes back.”

Thursday will be a busy and possibly volatile day for the AUD v GBP as the Australian budget and Bank of England may alter economists’ forecasts for the recovery in Australia and the path of interest rates in the United Kingdom.

The pair has resistance at the 0.5440 level from last week’s high and support for pound strength is further off at 0.5280.