At the time of writing GBP/AUD was trading at AU$1.9488, virtually unchanged from Tuesday’s opening rate.
The Pound (GBP) struggled to garner investor interest on Tuesday amid a lack of fresh UK data.
With macroeconomic releases in short supply, a slight uptick in Bank of England (BoE) interest rate cut bets seemed to apply light pressure to GBP exchange rates.
With the BoE set to deliver its next monetary policy update on Thursday 1st August, markets remain split over whether the central bank will deliver an interest rate cut next week, or whether they will continue to defer monetary loosening, with a September rate cut more likely.
An influx of mixed economic data in recent days has spurred rate cut bet volatility, with last week’s sticky services inflation and subsequent cooling wage growth data painting an unclear picture surrounding what the central bank is likely to do next. While some analysts believe that the BoE still has enough scope to delay its unwinding cycle, others argue that an August rate cut would be preferable given the UK’s current economic and fiscal conditions.
Novo Constare, CEO and co-founder of Indeed Flex, commented: ‘A rate cut is a possibility next month but could still be premature while wage growth remains strong and prices in the UK’s dominant services sector continue to rise. However, there is optimism that interest rates will eventually fall from their 16-year high this year, providing a much-needed boost to businesses and enhancing job creation.’
Australian Dollar (AUD) Falters amid Data-Light Session
The Australian Dollar (AUD) wavered on Tuesday as a surprise interest rate cut from the People’s Bank of China (PBoC) continued to weigh on the ‘Aussie’.
Due to AUD’s status as a proxy currency for the Chinese economy, the PBoC’s sudden rate cut saw the ‘Aussie’ plummet throughout Monday’s session, amid surmounting concerns about the health of China’s economy.
With fresh data sparse on Tuesday, the PBoC’s unexpected monetary loosening continued to deter investor interest in the Australian Dollar.
Lynn Song, Chief Economist for Greater China at ING, said: ‘Today’s moves mark the first change in rates since February, and also the first major move since announcing a shift in the monetary policy framework in June. As PBOC Governor Pan Gongsheng stated at the Lujiazui forum, the 7-day reverse repo rate would gradually become the main policy rate moving forward, and other policy rates would gradually “soften their role.” We will need to see if the other policy rates such as the MLF follow today’s rate cut in the coming weeks; if so, today’s move could be seen as the PBOC signalling the 7-day reverse repo rate’s new status as the primary policy rate.’
As the European trading session progressed, the highly risk-sensitive ‘Aussie’ failed to edge higher, despite an increasingly upbeat market sentiment, ending Tuesday’s session largely flat against its major rivals.
Pound Australian Dollar Exchange Rate Forecast: PMIs in Focus
Looking ahead, the latest preliminary PMIs are due for release on Wednesday, in both the UK and Australia.
Economists expect to see signs of accelerating growth in the UK’s vital services sector, which could bolster GBP exchange rates.
Meanwhile, the Australian services sector is forecast to have slowed in July, which could see AUD extending its recent losses, whilst simultaneously reinforcing Australia’s economic woes amid signs of a weakening private sector.
