February 17, 2022 – Written by John Cameron
Sterling and Australian dollar (GBP/AUD) exchange rates subdued amid declining risk appetite
The British Pound and Australian Dollar (GBP/AUD) exchange rate moved sideways today. The Australian dollar (AUD) was shaken by a decline in risk appetite following reports of artillery fire in Ukraine. The British pound (GBP) meanwhile rose amid continued expectations of a rate hike by the Bank of England (BoE).
As of this writing, the GBP/AUD exchange rate is around $1.8885, virtually unchanged from this morning’s opening numbers.
Pound (GBP) trending higher despite fresh Brexit woes
The Pound (GBP) climbed against the majority against the majority of its rivals today in mixed market sentiment. Escalating tensions on the Russian-Ukrainian border led to a volatile appetite for risk which benefited the pound sterling.
Expectations of a third straight interest rate hike by the Bank of England also likely pushed the pound higher today. Wednesday’s figures showed inflation hit 5.5% in January, its highest level since March 1992. The central bank is expected to raise rates again at its March meeting.
Analysts expect the inflation rate to continue rising alongside soaring energy prices through 2023. The prospect of a Russian incursion across the Ukrainian border has kept commodity prices energy raw materials at a high level, any real military action that could push them even higher.
Laith Khalaf, head of investment analysis at AJ Bell, was skeptical of BoE actions, however:
“Inflation is extremely unpredictable, so it’s prudent to recognize that it could eventually decline, although the Bank’s forecasting abilities haven’t exactly won any awards lately.”
The pound may, however, see Brexit-related headwinds following a report released by the British Chamber of Commerce (BCC) on Thursday. A survey of 1,000 businesses by the BCC found that only 8% agreed that the EU’s post-Brexit trade deal was helping businesses grow.
The majority of businesses disagreed, however, citing rising costs for businesses and customers, increased red tape and a drop in the number of EU customers considering UK goods and services.
Australian dollar (AUD) chipped by risk-free trading
The Australian Dollar (AUD) rose against its safer counterparts today but failed to gain against its riskier rivals. Global risk appetite eased on reports of artillery fire directed at Ukraine and likely limited gains for the “Aussie”.
January jobs data potentially limited losses for the AUD on Thursday. The country’s unemployment rate remained stable at its lowest level in 13 years while employment rose by 12.9K, well above forecasts. The job jump in January came as Omicron infections continued to soar across Australia.
Tight labor numbers are likely to further increase bets of an early interest rate hike by the Reserve Bank of Australia (RBA). Governor Philip Lowe said last week that a hike could come later in the year if the economy continues to recover as expected.
The central bank has made it clear that it will be watching labor numbers for signals that a rate hike is needed. The unemployment rate level of 4.2% from Thursday’s figures is just above the RBA’s target rate of 4%.
Markets are currently pricing in a June rate hike for the RBA. Gareth Aird, head of the Australian economy at the CBA, expects inflation to rise to 3.5% in March. This could further increase calls for higher interest rates and potentially push the AUD higher.
GBP/AUD Exchange Rate Forecast: Will the UK Retail Sector Recover After Omicron?
Looking ahead to the rest of the week for the pound, January retail sales figures are expected to show a strong recovery on Friday. If they print as expected, then Sterling could go up.
The Australian dollar will not see any other significant data this week. The currency is likely to be affected by the price of iron ore and global risk appetite.
Both currencies should also continue to be affected by developments on the Ukraine-Russia border.
TAGS: Australian Dollar Pound Forecast