The Pound has dropped back against the Australian Dollar on the afternoon of 26th February, following a cautious forecast on the UK economy.
Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, has warned that the Bank of England (BoE) may be over-cautious with monetary policy.
Mr Tombs has warned that;
‘Policymakers have continued to emphasise that the economy’s speed limit is 1.5% and that spare capacity is modest, at just 0.25% of GDP.
As a result, the 1.8% increases in GDP that the Monetary Policy Committee (MPC) expects in each of the next three years will lead quickly to excess demand.
Monetary policy works with a lag, so interest rates need to rise again soon, on this logic. Recent data, however, challenge the MPC’s pessimism’.
(First published 26th February, 2018)
GBP/AUD Exchange Rate Risks Decline on UK Optimism Reading
The Pound to Australian Dollar exchange rate (GBP/AUD) has recently risen by 0.3%, but the pairing risks a decline when UK confidence levels are reported.
Analytics company GfK is expected to announce a worsening of the February consumer confidence reading on 28th February, from -9 points to -11.
The previous reading for January showed an improvement from -13 points to -9, so a higher negative figure would represent a step back.
If UK consumer confidence does slip then the Pound to Australian Dollar exchange rate could also lose ground.
UK Services Sector PMI may Restore GBP/AUD Exchange Rate Value
Another data release that could affect the GBP/AUD exchange rate will be the release of the UK services sector PMI on 5th March.
The services sector is the single most important contributor to UK economic growth, as it encompasses important UK financial services activity.
As it stands, services activity is predicted to have risen marginally in February; such a result could raise demand for the Pound.
The services sector took a hit in the aftermath of the EU Referendum; with Brexit talks reaching critical points this year, it remains to be seen if there will be a repeat.
Services Activity Index could Trigger AUD/GBP Exchange Rate Volatility
On the other side of the pairing, the Australian Dollar to Pound (AUD/GBP) exchange rate could next be affected by Australian services sector stats.
The AIG services reading for February will be released on 4th March and is predicted to show a decline from 54.9 points to 53, indicating lower sector activity.
The services sector is an important one for the Australian economy, as it includes areas such as tourism and healthcare.
It is currently summer in the southern hemisphere, so the expectation would be for a rising Australian services reading instead of a drop.
If the services reading declines as predicted, the Australian Dollar could slide against the Pound.
Australian Dollar to Pound Turbulence Possible on RBA’s March Interest Rate Decision
Looking further ahead, the Australian Dollar to Pound exchange rate could be influenced by the Reserve Bank of Australia (RBA) interest rate decision on 6th March.
The Australian central bank is currently tipped to leave rates on hold at 1.5% on the day, but could still provoke AUD movement with any suggestions about future rates.
Wage growth has been an issue for RBA policymakers, as they are concerned that raising interest rates too quickly will pressurise vulnerable households.
If the outlook is cautious, then the Australian Dollar could slide in value against the Pound.
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