Pound Australian Dollar (GBP/AUD) Exchange Rate Falls as BoE Rate Cut Odds Rise

March 3, 2020 – Written by John Cameron

GBP/AUD Exchange Rate Sinks as UK Economic Outlook Darkens

The Pound Australian Dollar (GBP/AUD) exchange rate fell by -0.8%, with the pairing currently fluctuating around AU$ 1.931 after odds of a rate cut from the Bank of England (BoE) have risen following on from the US Federal Reserve’s emergency rate decision this afternoon.

Neil Birrell, Chief Investment Officer at Premier Miton, said that the Fed’s rate decision would likely see ‘other central banks… follow’.

Today also saw Mark Carney, the Governor of the Bank of England (BoE), state that the bank would take ‘all necessary steps to support the UK economy’ amid the global outbreak of the coronavirus (COVID-19).

Sterling also failed to benefit from today’s release of the UK Markit Construction PMI for February, which beat forecasts and emerged from contraction territory at 52.6.

Tim Moore, Economics Director at IHS Markit, was more cautious in his analysis, commenting:

‘While construction order books have begun to recover in the opening part of 2020, the fly in the ointment is the uncertain impact of the coronavirus outbreak on UK economic growth prospects. A renewed slowdown could see domestic investment spending put back on hold and dampen the outlook for the UK construction sector.’

Australian Dollar (AUD) Rises as Risk-Appetite Improves

The Australian Dollar (AUD) rose against a weakened Pound (GBP) in spite of today’s rate cut from the Reserve Bank of Australia (RBA), which reduced its rates from 0.75% to 0.5%.

Charalambos Pissouros, the Senior Market Analyst at JFD Group, explains:

‘The Aussie was found higher against the US dollar, perhaps aided by the broader upbeat sentiment. Paradoxically, despite the RBA cutting rates and expected to cut more, the Aussie may now enjoy some gains for a while on expectations that other Banks will follow suit in order to prevent a global recession.’

The AUD/GBP exchange rate has also benefited from slowing cases of coronavirus in China, Australia’s largest trading partner.

Any further signs of a slowdown in the spread of the virus would benefit the ‘Aussie’ as risk-aversion begins to ease off on renewed hopes for the global economy.

AUD investors will also be awaiting today’s release of the Australian AiG performance of construction index for February. If this rises out of contraction territory we could see the AUD/GBP continue to rise as Australia’s economic outlook brightens.

GBP/AUD Outlook: Could Sterling Rise on a Strong Services PMI?

Australian Dollar (AUD) investors will be looking ahead to tomorrow’s release of Australia’s GDP report for the fourth quarter. As this is expected to rise by 0.3% we could see the AUD/GBP exchange edge higher.

Sterling traders will be keeping a close eye on tomorrow’s UK Markit Services PMI. Any signs of improvement in the UK’s largest sector would boost the GBP/AUD exchange rate.

Coronavirus developments will continue to drive the GBP/AUD exchange rate this week, with any further signs of it affecting the UK weakening the increasingly risk-sensitive Pound.

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TAGS: Australian Dollar Forecasts Pound Australian Dollar Forecasts