While the AUD/GBP exchange rate has been hit by another China-inspired stock sell-off, the Australian Dollar is advancing on US interest rate pessimism. Pound Sterling has been buoyed by optimistic forecasts for UK economic performance in 2016, although not enough to gain ground against the ‘Aussie’ (AUD).
After delivering the highly-anticipated hike to interest rates in December, the Federal Reserve could actually be looking at cutting back to the previous level held steady for seven years, according to new market speculation. The growing issues in the Chinese economy, as well as the prospect of the oil market becoming even more turgid thanks to the addition of sanction-free Iranian crude, will have policymakers rethinking their plan for four additional hikes during 2016.
While the markets are currently pricing in two additional rate hikes, many economists have pointed to cases from Australia, the Eurozone and Sweden, where policy increases were quickly followed by additional tightening; something that futures prices didn’t signal until just before policymakers acted.
Australian shares once again mimicked the performance of Chinese equities during today’s Australasian session, with both the S&P/ASX200 index and the All Ordinaries index closing -0.7% down.
The news that the Federal Reserve may in fact cut interest rates in the near future has softened the US Dollar (USD), allowing the Australian Dollar to advance, although positive news for Pound Sterling has kept the AUD/GBP trading narrowly within opening levels.
The AUD/GBP exchange rate is trading in the region of 0.4815.
An independent UK forecaster, using HM Treasury’s model for the UK economy, has predicted that GDP will rise above the 2.4% currently forecast by other analysts to hit 2.6% by the end of 2016. ITEM Club, sponsored by Ernst & Young LLP, believe that rising consumer spending and exports will help drive UK economic growth despite the strong global headwinds threatening prosperity.
However, the Bank of England (BoE) will not see inflation rise to a point that justifies increasing interest rates, the report claims. Also, while 2016’s outlook is positive, the report then goes on to predict that GDP will drop to 2.1% in 2017 and 1.7% in 2018.
The situation in China and the prospect of more oil in the global market from Iran have caused jitters among UK investors, with the FTSE fluctuating between gains and losses.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is currently trending between 2.0610 and 2.0820.
Little data for Australia is due out tomorrow, but a series of Chinese, including headline GDP figures, retail sales and industrial production figures, could provoke further stock market volatility that may spill over into ‘Aussie’ exchange rates. The UK releases Consumer Price Index figures during the London session, with economists predicting no change in prices during December and year-on-year (YoY) growth rising from 0.1% to 0.2%.
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate is currently trading between 0.4799 and 0.4848.
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