The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate recorded heavy gains in Tuesday’s European session after annual UK inflation dropped to 0.0% in the month of February; economists had forecast a more favourable drop from 0.3% to 0.1%.
As a result of low inflation, the Bank of England (BoE) is likely to postpone hiking interest rates in the near future—an event that’s cost the Pound investor sentiment.
Economist Vicky Redwood commented: ‘It looks odds on that inflation will turn negative in March… But we doubt that this will turn into more serious and engrained deflation, given that inflation expectations seem well anchored. We still think that deflation in the UK will be a “good” development, giving households’ incomes a welcome boost and supporting the economic recovery this year.’
However, other economists (such as the Bank of England’s Andrew Haldane) have suggested that if inflation remains low, the central bank could cut interest rates—a development that would be devastating for the Pound Sterling exchange rate.
Perhaps the Pound Sterling will get an opportunity to reclaim some losses on Wednesday with the release of the UK BBA Loans for House Purchase stat. Thursday may also see some Pound movement with Retail Sales and CBI Reported Sales figures published.
Meanwhile, the Australian Dollar has reclaimed some losses against the US Dollar (AUD/USD) after the Federal Open Market Committee (FOMC) announced last week that interest rates were to remain on hold for the foreseeable future.
Markets had expected a more hawkish Federal Reserve, but the cool tone allowed riskier currencies such as the ‘Aussie’ to gain.
Industry expert Walter Todd commented: ‘You have this bullish trade that’s been happening since the Fed announcement on Wednesday. In the absence of information, you probably continue to drift higher. The path of resistance is up at this point.’
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate is forecast to experience movement on Wednesday with the release of the Reserve Bank of Australia’s (RBA) Financial Stability Review. Additionally, Australian Skilled Vacancies figures will also emerge.
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate is trading at 0.5302. The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is trending in the region of 1.8872.
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