Volatile week for GBP/AUD

Pound rises from AUD$1.96 to mid $1.98s

It’s been a particularly volatile week for GBP/AUD with the pound dropping from AUD $2.00 to $1.96 and then climbing back up to $1.9820 (at the time of writing). The graph below shows sterling/aussie movement over the last 7 days.

GBP/AUD

GBP/AUD 7 Days

 

The release on Tuesday of the Reserve Bank of Australia’s (RBA) minutes from last week’s February interest rate decision meeting gave the Aussie a much needed boost, the dollar having hit a five year low against sterling last week. The minutes – which cooled speculation of another interest rate cut in March – strengthened the Australian currency, pushing GBP/AUD down 2%.

“In deciding the timing of such a change, members assessed arguments for acting at this meeting [February] or at the following meeting,” the bank stated in its minutes. “On balance, they judged that moving at this meeting, which offered the opportunity of early additional communication in the forthcoming Statement on Monetary Policy, was the preferred course.”

UK inflation data hits the pound

The pound was helped on its way down against the Australian dollar by worse than expected inflation figures from the UK. CPI data released on Tuesday morning showed inflation in the UK had fallen to its lowest level on record. With inflation and interest rates so closely linked, it fuelled speculation that the Bank of England will look to push the interest rate hike back even further. Many of the major central banks have actually loosened policy over the last few months as they struggle with low inflation – and the threat of deflation – so it now looks unlikely that the BoE will rush into an interest rate rise.

Just as it looked as though GBP/AUD would continue falling, better than expected employment and wage growth data from the UK on Wednesday morning gave the pound a boost, pushing the rate back up into the AUD$1.98s. Against the euro, sterling broke through the €1.36 mark to levels not seen for over 7 years. The pound also managed to regain some ground lost to the US dollar recently, pushing back up towards $1.55.

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James Baxter

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