GBP/AUD Exchange Rate BoE Rate Hold Boosts UK Market Confidence
The Pound Australian Dollar (GBP/AUD) exchange rate rose soared by 1% today, with the pairing currently trading around $ 1.947 after the Bank of England (BoE) held its interest rate decision at 0.75%, with odds of a central bank cutting rates in the next few months falling.
The BE said in the minutes of its meeting:
‘Since the December meeting, international developments had been positive and the most recent UK data supported the forecast of a near-term recovery in growth.’
‘The Committee would monitor closely the extent to which these early indications of an improved outlook were sustained and followed through to the hard data on domestic activity in coming months.’
The central bank’s forecast also assumed an orderly new free-trade agreement with the European Union (EU), a prospect which has buoyed confidence in the Pound as the UK is due to officially leave the EU tomorrow evening.
As this morning saw the BoE’s rate decision hanging on a razor’s edge, with odds rising to over 50%, today’s announcement has steadied confidence the UK’s economic outlook and has benefited the GBP/AUD exchange rate.
AUD/GBP Exchange Rate Sinks on Risk-Off Market Sentiment
The Australian Dollar fell today as market risk-off sentiment continues to weigh on the risk-sensitive ‘Aussie’ as China’s coronavirus continues to dominate headlines.
The Australian Dollar (AUD) has also failed to capitalise on yesterday’s stronger-than-expected Australian inflation report for the fourth quarter, which has effectively lowered the odds of an interest rate cut from the Reserve Bank of Australia (RBA).
Derek Halpenny, an analyst and head of international securities at Mitsubishi UFJ Financial Group, commented:
‘We see plenty of reason for the RBA cutting on 4th Feb. So from a risk-reward perspective and given how little is priced for a rate cut on 4th February, we see greater potential for AUD downside from here over the short-term despite the drop we had on Monday.’
With the Australian Dollar often used as an indicator of China’s economic sentiment, as well as being a risk-correlated currency, rising concerns over the virus’s negative impact on the Chinese economy have severely compromised the AUD/GBP exchange rate today.
GBP/AUD Forecast: ‘Aussie’ to Remain Downbeat on Risk-Off Markets
Brexit will remain firmly in focus for the rest of the week, with just one day to go until the UK officially leaves the European Union. However, any signs that the UK’s economy could face a turbulent and uncertain future with the EU would prove Pound-negative.
The Australian Dollar (AUD), meanwhile, is expected to remain subdued against many of its peers, with growing uncertainty over China’s economy leaving markets wary of trading in the risk-sensitive ‘Aussie’.
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