GBP/AUD Choppy After Federal Reserve Announcement
The Australian dollar has gained ground against its UK counterpart after the US Federal Reserve announced an interest rate rise on Wednesday evening. Janet Yellen and Co. announced a 0.25% increase to the US base rate, the first shift in monetary policy for the world’s largest economy in over 9 years. The news came as no surprise, but the strengthening of the Australian dollar was not expected. The graph below shows GBP/AUD movement over the last 7 days.
GBP/AUD exchange rate graph
The strengthening of the Australian dollar came as somewhat of a surprise as most analysts had expected the currency to weaken when the US announced the interest rate rise. Historically, the Australian dollar has benefitted from the relatively high interest rate in Australia. Investors have previously been drawn to assets held in Aussie dollars, owing to the higher rate of return on offer. Theoretically, raising interest rates would narrow the differential between US rates and Australian rates, dampening demand for the Australian dollar and weakening it in the process. Bizarrely, the Australian dollar actually strengthened as the Federal Reserve tightened policy.
The Aussie’s gains were short lived, however, as retail sales figures from the UK were released on Thursday morning, showing better than expected growth. Figures published by the Office for National Statistics showed sales volumes had increased by 1.7% from the previous month. Compared with November last year, sales had risen by 5%. The increase in sales has largely been attributed to ‘Black Friday’, with Keith Richardson from LLoyds Bank saying:
“Retailers were better prepared this year and adapted the US-style Black Friday to better reflect British culture. Some chose not to take part while many others spread the discounts over several days to better protect margins and ease the burden on their websites and IT platforms.”
The better than expected figures gave the pound a boost, pushing GBP/AUD back up towards 2.10.
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