The Pound Australian Dollar (GBP/AUD) exchange rate fluctuated as Bank of England (BoE) Governor Andrew Bailey appeared cautious in his speech, highlighting persistent inflationary pressures and concerns over economic growth.
At time of writing GBP/AUD traded around $1.2466, moderately unchanged from the morning’s opening levels.
Pound (GBP) Exchange Rates Undermined by Dovish BoE
The Pound (GBP) struggled to find much demand in the Wednesday session as a speech from BoE Governor Andrew Bailey failed to inspire much confidence in GBP investors.
Speaking at the annual conference for the British Chambers of Commerce, Bailey spoke about the persistent inflationary pressures weighing on the UK economy and warned of the potential delayed impact of high interest rates to the economy. Bailey also admitted that the UK’s labour market is finally showing substantial signs of cooling.
In the wake of less-than-stellar employment data on Tuesday, hints of a pause from the BoE are weighing on the Pound. Bailey added:
‘We have good reasons to expect inflation to fall sharply over the coming months, beginning with the April number. As headline inflation falls, second-round effects are unlikely to go away as quickly as they appeared.
‘The easing of labour market tightness is happening at a slower pace than we expected in February and the labour market remains very tight.’
Despite this, Bailey also pointed out that inflation remains far too high, over five times the target rate of 2%. Ending his speech, Bailey reiterated the central bank’s commitment to rein in inflation, saying:
‘Inflation is much too high, and we need to bring it back sustainably to our 2% target.
‘After the initial recovery in 2020, the level of economic activity, measured by monthly GDP, has failed to grow beyond its pre-pandemic level on a sustained basis.’
Australian Dollar (AUD) Exchange Rates Supported by Cautious Market Optimism
Meanwhile the Australian Dollar (AUD) shrugged off worrisome labour market data and found some modest support with optimism surrounding the US debt ceiling debate. Negotiations between President Joe Biden and House of Representatives Speaker Kevin McCarthy appeared to have edged closer to completion.
McCarthy left the meeting late Tuesday and told reporters that a solution is close, and one could be reached by the end of the week but there is still work to do. With mounting fears that if the US was to default on their debts, a financial catastrophe could sweep through the economy. Treasury Secretary Janet Yellen said on Tuesday that the danger was real:
‘It is very conceivable that we'd see a number of financial markets break - with worldwide panic triggering margin calls, runs and fire sales.’
However, with an amicable solution nearing, the global markets could sigh a breath of relief, buoying the risk-sensitive ‘Aussie’.
GBP/AUD Exchange Rate Forecast: Market Sentiment to Buoy the Aussie?
Looking ahead, the Pound Australian Dollar exchange rate could be left to market sentiment amid a lack of economic data to end the week. Without data for either pairing, the wider market mood will be play a bigger part in movements.
Reduced rate hike bets for the Pound could sap demand as investors continue to digest the speech from Bailey, as well as the wavering state of the UK economy.