Pound Australian Dollar (GBP/AUD) Exchange Rate Gains as Markets Cheer UK-EU NI Deal

February 28, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Gains as Markets Cheer UK-EU NI Deal

Pound Australian Dollar (GBP/AUD) Exchange Rate Climbs amid Risk-Off Mood

The Pound Australian Dollar (GBP/AUD) exchange rate made steady gains on Tuesday. An upbeat mood surrounding the UK-EU trade deal boosted the pairing. Additionally, Bank of England (BoE) rate hike bets pushed the exchange rate higher.

Finally, a retreat in global risk appetite saw GBP/AUD gain further ground.

At time of writing the GBP/AUD exchange rate was at around AU$1.7969, which was up roughly 0.4% from that morning’s opening figures.

Pound (GBP) Bolstered by NI Deal Optimism

The Pound climbed on Tuesday. Sterling benefitted from fresh optimism following confirmation of the UK-EU Northern Ireland trade deal.

The agreement, known as the ‘Windsor Framework’, is set to remove many of the checks on goods moved between the UK and NI. Additionally, the deal will maintain access to the single market for Northern Ireland. Business in the country were upbeat regarding the deal.

GBP was also bolstered by bets on additional interest rate hikes from the BoE. Markets have largely priced in a 25bps increase from the central bank at their next meeting.

Speaking on the BoE’s forward policy, ING strategist Francesco Pesole said:

‘A 25-basis point move in March is fully in the price, and the debate appears to be much more centred on whether the Bank will need to keep tightening beyond March: markets are definitely swinging on the hawkish side, expecting a total of 80bp of tightening before reaching a peak.’

Australian Dollar’s (AUD) Losses Limited by Retail Sales Recovery

The Australian Dollar (AUD) slipped on Tuesday. A retreat in global risk appetite weighed on the risk-sensitive ‘Aussie’, as well as a generally downbeat mood in the commodities markets.

Pessimistic signals surrounding the Chinese economy deepened losses for AUD. Speaking on Tuesday, officials from the Chinese Communist Party’s Central Committee signalled that the country’s economic recovery remained unstable.

The Central Committee also stated that the country’s economy faced the triple threat of demand contraction, supply shock, and weakened expectations.

The Aussie was underpinned by some positive data releases, however. Australia’s current account surplus expanded drastically in the fourth quarter of 2022 to AU$14.1bn.

Upbeat retail sales figures also lent support to AUD. January’s sales rebounded by more-than-forecast on Tuesday. Sales rose by 1.9%, well above forecasts of 1.5% and a drastic improvement from the 4% fall in December.

GBP/AUD Exchange Rate Forecast: Will BoE Bailey Hint at Further Rate Hikes?

Looking to the week ahead for the Pound, a speech from BoE Governor Andrew Bailey on Wednesday may prompt movement in Sterling. A speech from BoE chief economist Huw Pill on Thursday will also be monitored for any pertinent signals.

Wednesday will also see the final reading of February’s manufacturing sector PMI could dent confidence in the Pound. The data is expected to confirm a mild downturn in the sector, although the cooler pace could lessen any negative impact on GBP.

Finally for Sterling, the final reading of February’s services sector PMI could provide a boost to GBP on Friday. The figures are set to confirm the sector’s first positive reading since July 2022.

For the Australian Dollar, a speech from RBA Assistant Governor Brad Jones on Tuesday evening could cause movement in AUD.

The Australian Dollar could see mixed movements on Wednesday if the data releases print as forecast. Initially, fourth quarter GDP data is expected to indicate an expansion in the Australian economy. This evidence of economic resilience could push the ‘Aussie’ higher.

On the other hand, a forecast drop in January’s CPI indicator could keep pressure on AUD. The drop could see markets pare back their bets on further RBA rate hikes.

The latest private sector data from China could also impact the Australian Dollar’s fortunes on Wednesday. Output across all of China’s private sectors in February is expected to rise into positive territory as the country continues to recover from the impact of Covid-19.

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TAGS: Pound Australian Dollar Forecasts