The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate rallied by around 0.78% on Monday afternoon.
Although the ‘Aussie’ (AUD) suffered a significant depreciation after China’s manufacturing contracted, the South Pacific asset recovered losses after traders felt that a large enough declination had been priced-in with speculation rife that the Reserve Bank of Australia (RBA) will decide to cut rates during Tuesday’s policy decision.
The Pound Sterling, meanwhile, is trending lower versus the majority of its most traded currency rivals amid speculation that the Bank of England (BoE) policymakers will be content with inaction for the foreseeable future.
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate is currently trending in the region of 0.5188.
As explained above, the ‘Aussie’ (AUD) downtrend following the disappointing data out of China was short-lived. This is as a result of traders feeling that a large enough decline has already been priced-in with mounting speculation that the RBA will cut rates.
‘While we believe the probability of an easing in the cash rate in February is relatively high, we believe the RBA’s preferred strategy will be to shift to an easing bias at the February meeting, stress the importance of macroprudential measures outlined in December 2014 in restricting excess lending to the housing sector and deliver a 25 basis point rate cut at the March meeting,’ Goldman Sachs chief economist for Australia Tim Toohey said on Monday.
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate dropped to a low today of 0.5144.
With speculation mounting that BoE policymakers will be content with inaction for the foreseeable future, the Pound slumped as traders expect more of the same after Thursday’s meeting.
‘The committee will not seriously contemplate raising rates until the downside risks to the medium-term inflation outlook have passed, which implies that it will be watching inflation expectations and pay growth, as well as the prevailing inflation numbers, even more closely than usual,’ said Philip Shaw, an economist at Investec.
Further aiding the Sterling downtrend is political uncertainties as we near the general election. With Labour heading the polls at this early stage, fears that their moderate approach to austerity and economic incompetence will have a damaging effect on the British economy.
Given the lack of data to curb the trend, and with mounting negative sentiment towards the Bank of England, the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate is likely to continue trending higher for the remainder of Monday.
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate advanced to a high today of 0.5202.
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