Gloomy Outlook for UK Economy Drags GBP/AUD Exchange Rate Down
The recent upset for Pound traders has come from the Bank of England (BoE), which has finally committed and raised interest rates for the first time in over a decade.
The BoE did as expected in its policy meeting and raised rates from 0.25% to 0.50%, but the Pound instead crashed because of the central bank’s outlook.
This was much worse than expected; while the bank has not explicitly projected an economic crash, they have done little to improve the current predictions.
The BoE has been stuck between a rock and a hard place in making this decision, as by freezing interest rates they would have greatly disappointed traders.
On the other side, however, by raising interest rates they have attracted criticism from bodies like the TUC, which has claimed that ‘[The] hike is a hammer blow for those in problem debt’.
The bank has warned that there might not be any more interest rate hikes for the foreseeable future, adding that Brexit could decide the next direction of rate movements.
Sterling could make further losses against the Australian Dollar on Friday, if the UK services PMI for October declines as expected.
The services sector is the greatest contributor to UK economic growth, so a slowdown in activity might cause further Pound losses before the weekend.
Australian Dollar Bolstered by Surprising Rise in Trade Surplus
Trading data has been the main source of Australian Dollar support today, which has led to a major 1.8% rise in the AUD/GBP exchange rate.
In September, it was reported that the Australian trade balance had risen from 0.873bn to 1.745bn; economists had predicted a decline to the region of 1200m.
Further support has come from the building permits figure for the month, which has shown growth of 1.5%.
Giving some extra detail on this latter figure was ANZ economist David Plank;
‘Housing approvals are now up a touch over 15% from their low in October 2016 and up more than 12% from the 2017 low in March’.
The next Australian domestic data will come out on Thursday night and Friday morning, consisting of services data and sales figures.
Services activity is forecast to rise, while an increase in retail sales is also on the cards.
If both of these estimates are correct then the Australian Dollar could rise further against the Pound over Friday’s trading session.