Pound-Australian Dollar could struggle to extend gains unless the Bank of England strikes a hawkish tone, while Australian inflation may revive RBA rate hike bets.
The Pound to Australian Dollar (GBP/AUD) exchange rate edged higher on Tuesday as mixed comments from Reserve Bank of Australia Governor Michele Bullock weighed on the ‘Aussie’ ahead of key inflation data.
At the time of writing, GBP/AUD was trading around AU$1.9081, up approximately 0.3% on the day.
DAILY RECAP:
The Australian Dollar (AUD) softened on Tuesday after investors pared expectations for further Reserve Bank of Australia interest rate hikes following mixed remarks from Governor Michele Bullock.
Speaking in Sydney at the annual Anika Foundation lunch, Bullock reiterated concerns over persistently high inflation and suggested that further policy tightening may still be required.
However, she also emphasised the high level of uncertainty surrounding the economic outlook and noted that previous interest rate increases would take more time to feed through into the economy.
The comments prompted investors to trim expectations for an August rate hike and, combined with a more cautious market mood, left the ‘Aussie’ under pressure.
Meanwhile, the Pound (GBP) traded in a relatively narrow range against most major currencies in the absence of fresh UK economic data.
With few domestic catalysts, investors were reluctant to take significant positions ahead of Thursday’s Bank of England (BoE) interest rate decision.
The BoE is widely expected to leave interest rates unchanged at 3.75%, leaving markets focused on policymakers’ forward guidance. If the Bank remains non-committal about the prospect of another rate hike later this year, Sterling could struggle to find support.
Near-Term GBP/AUD Forecast: Rising Inflation to Lift the ‘Aussie’?
Looking ahead, Australia’s quarterly consumer price index will be the key driver of the Pound to Australian Dollar exchange rate.
Inflation is expected to remain at 4.1% in the second quarter, although recent developments in the Middle East have increased the risk of a stronger-than-expected reading.
A higher inflation print could revive expectations for further Reserve Bank of Australia interest rate hikes and provide fresh support for the Australian Dollar.
Meanwhile, Sterling is likely to remain rangebound through the middle of the week as investors await Thursday’s Bank of England policy announcement.
Our currency coverage draws on live market data, official economic releases and published bank research.
