The Pound seems to be bouncing back after strong risk-sentiment had the ‘Aussie’ reaching its highest point since January 2015 earlier this morning.
After suffering through the whimsy of the global economy for the last few weeks, Pound Sterling (GBP) seems to be gaining strength due to there being no further concerns relating to the UK economy on the immediate horizon. The AUD/GBP pair is currently at -0.4%, moving in Sterling’s favour.
However, in the last day alone the Australian Dollar soared to 0.5356 against its British counterpart, the highest point the exchange rate has enjoyed since January of 2015 and an over one-year-high.
The pair has since dropped back down to trend around 0.5270 after the Bank of England’s (BoE) highly anticipated key rate decision and easing targets were released. While the decisions were as expected, with rates remaining at the record-low 0.50% for the seventh year in a row, the central bank’s minutes instilled a little calm into the Pound’s recent anxieties.
Many analysts had expected the BoE, after disappointing growth and budget announcements, to imply that a widely anticipated rate-hike would not happen in the near future – or worse that a cut to the record-low 0.50% rate could actually be made.
However, fears were relieved once the central bank took an entirely neutral stance on their actions for the rest of 2016, indicating that the uncertainty around the upcoming EU Referendum made it difficult to make any solid plans for the upcoming year. A potential ‘Brexit’ for example could cause the BoE to completely alter their course, causing them to want to remain flexible.
This appears to have positively influenced investor attitudes towards the Pound despite yesterday’s bearish 2016 budget.
The US Federal Reserve announced on Thursday morning that the key interest rate would only be raised possibly twice more in 2016. This disappointed many investors who had expected 100 basis points of growth throughout the year as previous forecasts had implied.
While the US economy still experienced growth, this dovish forecast from the Fed spurred investors to seek thrills elsewhere as risk-sentiment skyrocketed throughout the day. This, of course, influenced the risky ‘Aussie’ commodity currency, already experiencing a bullish month against its rivals due to positive data and iron ore price gains.
Australian unemployment figures also came in at 5.8%, undercutting the expected 6.0% and inspiring more confidence in the Australian Dollar despite lower than expected figures in employment change.
This comes quite soon after more obstacles in the recent oil commodity crisis had appeared to put investors off risk and towards ‘safe-haven’ currencies, a movement that was clearly very temporary.
The Australian Dollar had also experienced a bullish week last week which some analysts predicted would peter out sooner rather than later.
Fortunately for the ‘Aussie’, the AUD/GBP exchange rate was supported by the increased riskiness of investors as well as yesterday’s UK 2016 Budget, delivered to Parliament by George Osborne. Osborne announced major GDP cuts and increased austerity measures which influenced investors to leave the Pound until BoE’s abstinence on action caused Sterling to relax today.
Regardless of how risk-sentiment changes going forward, the Pound’s rough week on top of EU referendum anxiety is unlikely to be the formula for Sterling strength in the near future. The historic vote takes place in June, when UK residents will decide whether or not the nation will undergo a ‘Brexit’. As the uncertainty of Britain’s future increases, investors are less and less likely to make big moves on the currency as June draws near.
While the AUD/GBP pair currently falls it has just barely dropped to this week’s opening levels, with the ‘Aussie’ still having climbed over the Pound considerably since February.
However, some analysts’ predictions that the Pound’s weakness could eventually bounce back with recoil strength remain relevant, especially with the pair dropping from 0.5357 to 0.5268 in a matter of hours.
Business Insider Australia also reports that Australia’s economy may already be beginning to slow after its bullish season and continued good favour towards AUD.
Luci Ellis is due to make a speech on behalf of the Reserve Bank of Australia (RBA) this morning, which could also influence the future direction of the Australian Dollar as the week comes to an end.
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate is currently trending in the region of 0.5270 while the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate trends in the region of 1.8978.
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