Bank of England (BoE) Speculation Pushes Australian Dollar to Pound Exchange Rate Lower
Amid a lack of supportive factors in Australian Dollar (AUD) trade this week, the Australian Dollar to Pound (AUD/GBP) exchange rate has slumped, trending near its worst weekly levels during Friday’s European session.
AUD/GBP began the week at the level of 0.5647 but was ultimately unable to hold its ground. The pair spent most of the week tumbling and hit a weekly low of 0.5592 on Friday.
The primary reason for the Pound’s (GBP) late-week strength was rising market expectations that the Bank of England (BoE) was increasingly hinting that it may need to up the pace of UK interest rate hikes in the coming year.
As a result, BoE interest rate hike bets have risen despite some recently concerning UK ecostats. Investors are speculating that the BoE could hike UK interest rates again as soon as May 2018.
Sterling has also been supported by Friday reports that Britain’s opposition Party, Labour, could back an amendment from Conservative Party rebels aimed to keep Britain in a customs union post-Brexit.
Australian Dollar (AUD) Exchange Rates Fail to Find Support in Recent Ecostats
Low demand for risk-correlated currencies, as well as a lack of supportive Australian ecostats in recent weeks, have left the Australian Dollar (AUD) broadly unappealing.
Wednesday saw the publication of key Australian data, including wage growth and the nation’s latest construction work figures.
Australian wages beat expectations overall, coming in at 0.6% quarter-on-quarter and 2.1% year-on-year. However, the report’s details revealed that private sector pay, which accounts for most workers, was only a weak 1.9% year-on-year.
Construction work was concerning too, contracting at -19.4% quarter-on-quarter, rather than the expected -10.1%.
Towards the end of the week, higher Federal Reserve interest rate hike bets and unexpectedly strong Japanese inflation data made ‘safe havens’ more appealing and weakened risky currencies like the ‘Aussie’.
Pound (GBP) Investors Largely Overlook Concerning UK Ecostats
UK data published over the last few sessions has been largely disappointing, and has caused market concerns that Britain’s economy has not been as resilient as hoped amid the Brexit process.
Thursday saw the publication of Britain’s second Q4 2017 Gross Domestic Product (GDP) projections, as well as Q4 business investment projections.
All major prints fell short of expectations, but despite this the Bank of England’s (BoE) rising signs of hawkishness have been enough to keep the Pound supported.
BoE policymakers have predicted that factors like UK wages will firm in the coming months and support a faster pace of monetary policy tightening. As a result, investors will be more focused on upcoming data than 2017 data.
Australian Dollar to Pound (AUD/GBP) Forecast: February Manufacturing Results Due Next Week
Next week’s economic calendar will be relatively quiet, which could leave the Australian Dollar to Pound (AUD/GBP) exchange rate reacting more to risk-sentiment as well as Brexit and Bank of England (BoE) speculation.
In terms of data, Australia’s new home sales results from December will come in on Tuesday, followed by private sector credit on Wednesday and manufacturing PMIs from February on Thursday.
As for UK publications, GfK’s consumer confidence survey for February is currently set for Wednesday, with Markit’s manufacturing PMI for February due on Thursday.
With data already taking somewhat of a backseat in Pound trade, Sterling investors will be focused on any Brexit developments or surprising comments from Bank of England officials.
The Australian Dollar, on the other hand, could strengthen and recover from its recent lows if market demand for risky currencies rises.