Pound to Australian Dollar Exchange Rate Rallies on Higher Hopes for BoE Policy Tightening
The Pound has been in high demand today, rising sharply against the Australian Dollar as well as the South African Rand and Indian Rupee.
This GBP/AUD advance has been caused by rising optimism that a Bank of England (BoE) interest rate hike could come as early as spring this year.
Such conclusions have been partly triggered by the IHS Markit estimate that inflation could pick up again in the coming months, based on data for manufacturing activity in January.
UBS Bank has put forward this highly optimistic forecast, with Strategist John Wraith stating;
‘The better momentum the economy starts 2018 with could give the BoE Monetary Policy Committee (MPC) a window of opportunity to raise bank rate by the middle of the year’.
Mr Wraith hasn’t been entirely optimistic about the future, however, by issuing the following warning about UK investment levels;
‘We still expect the pace of growth to slow over the course of 2018, whether a [Brexit] transitional deal is agreed early or not.
We believe a near term resolution would not address the difficulties of arriving at longer term arrangements that [favour] the UK, and [is] likely to keep investment activity subdued’.
The next data releases that could influence the Pound will be the UK construction PMI activity reading on 2nd February, in addition to the services PMI out on 5th February.
Forecasts are for a slight dip in construction sector activity, as well as a greater reduction for the services score.
The services reading is the more important of the two, as it represents the largest individual contribution to UK economic growth.
If the services sector does show a significant contraction then the Pound could slide against the Australian Dollar, as it would imply poor UK GDP readings in the months ahead.
Australian Dollar Tumbles on Disappointing Permits Figure and US Dollar Strength
The Australian Dollar has fallen across the board today, dropping by -0.7% against the Pound and making similar-sized losses against the Euro and US Dollar.
This deterioration is down to poor Australian domestic data, as well as external pressure from the US.
In the former case, national building permits fell by -20.2% in December 2017, having previously risen by 11.7%.
This result was worse than the predicted -8% outcome and was taken as a sign that the national housing market is turning cooler.
Elsewhere, confidence that the US Federal Reserve will raise interest rates at least 3 times in 2018 has pushed the US Dollar up and weakened the Australian Dollar by extension.
Australia’s services sector reading for January is out on 4th February and is tipped to show slight growth in January.
The Australian Dollar could appreciate if the services reading does grow, as this will set the country up well going into the rest of the year.