The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate advanced to its best level since January 6 on Friday as markets continued to digest the implications of the European Central Bank’s massive economic stimulus programme.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate hit a session high of 1.880
Against the US Dollar, the ‘Aussie’ briefly dipped below 80 cents to reach its lowest level since 2009. The sharp declines in the currency come as iron ore prices continue to tumble and as the move by the European Central Bank put pressure on the Reserve Bank of Australia to cut interest rates in February.
‘Many economists are thinking, well, the Dollar’s had a big fall and we’ll stabilise. I think that is unlikely. I think the most likely scenario is we’ll continue to head down reflecting the weakness in commodity prices,’ said Shane Oliver, chief economist at AMP Capital.
With many of the world,’s major central banks already having low interest rates and using monetary stimulus measures pressure is building on the RBA to take similar action.
Tumbling oil and iron ore prices have led to low inflation taking root in Europe the UK and USA and many other parts of the world, as such the RBA will have to take action.
RBA Forecast to Cut Interest Rates
‘In the absence of any RBA guidance, the markets are looking offshore for direction. What they are seeing is looser policy from Canada, Europe, the Bank of England switching from two policy makers calling for a hike to nobody calling for a hike, and super low inflation in New Zealand causing the market to think about a rate cut less than a year after they completed 100 points of hikes. In that environment, people are asking; why should the RBA hold steady?’ said Westpac’s senior currency strategist Sean Callow.
Also weakening the Australian currency was news that Iron ore prices declined to their lowest level in more than five years as speculation builds that China will reduce its steel output in the run-up to the Chinese New Year Holiday period.
Pound Supported by Retail Sales Data
The Pound made further gains against the Australian Dollar and other major peers after UK retail sales beat economist forecasts.
On a month on month basis, sales rose by 0.4% in December, beating expectations for a fall of -0.33%. On an annual basis sales jumped by 4.3%, beating forecasts for a figure of 2.75%.
