Pound Australian Dollar (GBP/AUD) Exchange Rate Softens as UK Production Slows
Another weak raft of UK data left the Pound to Australian Dollar (GBP/AUD) exchange rate on a downtrend, with confidence in the domestic outlook diminishing.
Investors were not impressed to find that industrial and manufacturing production figures remained sluggish in March, suggesting that the sector is continuing to struggle.
Another sharp contraction in construction output put further pressure on Pound (GBP) exchange rates, adding to evidence that the UK economy struggled in March.
With all signs pointing towards a loss of economic momentum in the first quarter the appeal of the Pound naturally diminished, especially as markets braced for the latest Bank of England (BoE) policy decision.
GBP/AUD Exchange Rate Boost Forecast on Weaker Australian Borrowing
Although April’s Chinese consumer price index fell short of forecast, easing from 2.1% to 1.8%, this was not enough to boost the Pound to Australian Dollar (GBP/AUD) exchange rate.
Market risk appetite picked up once again on Thursday as reaction to the US withdrawal from the Iran nuclear deal faded.
While geopolitical tensions persist, and investors remain jittery over the likely next moves of the Trump administration, the mood towards the Australian Dollar (AUD) nevertheless improved.
However, the recovery of AUD exchange rates could prove short-lived if March’s Australian home loans and investment lending figures demonstrate weakness.
Lower levels of borrowing would suggest that confidence within the Australian economy remains muted, pointing towards weaker growth in the coming months.
Any fresh uptick in market risk appetite could also offer a boost to the GBP/AUD exchange rate.
BoE Rate Decision Forecast to Trigger Sharp Moves for Pound Australian Dollar (GBP/AUD) Exchange Rate
Reaction to the BoE’s May policy decision is likely to be volatile, leaving the Pound to Australian Dollar (GBP/AUD) exchange rate vulnerable to further downside pressure.
If the Monetary Policy Committee (MPC) votes unanimously in favour of leaving interest rates on hold this could weigh heavily on the Pound.
While markets had previously priced in high odds of a May rate hike the prospect of any imminent policy tightening looks distinctly limited.
Even so, GBP exchange rates could find some support if the tone of policymakers proves more hawkish than anticipated.
As researchers at UOB Group noted:
‘We now expect the BoE to keep rates unchanged in a split vote at the May MPC meeting, having previously expected a hike to 0.75%. However, this is likely to be a delay, rather than abandonment, of the central bank’s plans to gradually normalize monetary policy. Furthermore, this week’ Super Thursday decision has also not lost its importance. The Inflation Report and BoE Governor Mark Carney’s press conference will be crucial in setting up market expectations for an August rate hike, which has the potential to impact GBP.’
If the BoE seems to pave the way for an interest rate hike later in the year then the Pound to Australian Dollar (GBP/AUD) exchange rate looks set to rally sharply.
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