Pound Australian Dollar Exchange Rate News: GBP/AUD Climbed as Banking Sector Fears Grow

March 27, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Climbed as Banking Sector Fears Grow

Pound (GBP) Limited by Ongoing Economic Outlook Fears

The Pound (GBP) found moderate success against its weaker peers on Monday amid a lack of economic data. Comments from the head of the International Monetary Fund (IMF) have rocked market sentiment amid the global banking crisis.
After the collapses of several banks, markets turned cautious over the impact of surging interest rates are having on the financial sector. IMF head Kristalina Georgieva has issued a warning for the stability of the world economy in the wake of bank collapses. She added:

‘At a time of higher debt levels, the rapid transition from a prolonged period of low interest rates to much higher rates – necessary to fight inflation – inevitably generates stresses and vulnerabilities, as evidenced by recent developments in the banking sector in some advanced economies.’

Amid the volatility of surging interest rates, prolonged fallout from Covid, and the Ukraine conflict, the global economy remains under intense pressure. Domestically, however, the outlook for the UK is also hampered by Brexit, according to Richard Hughes, the Chair for the Office for Budget Responsibility (OBR). He said:

‘We think that it in the long run (Brexit) reduces our overall output by around 4% compared to had we remained in the EU. It’s a shock to the UK economy of the order of magnitude to other shocks that we’ve seen from the pandemic, from the energy crisis.’

Australian Dollar (AUD) Undermined by Wavering Global Market Sentiment

Meanwhile, the Australian Dollar (AUD) came under selling pressure on Monday morning as volatility on the financial sector weighed on investors. The risk-sensitive ‘Aussie’ struggled for demand as fears of contagion in the banking sector have weighed heavily on market sentiment.

Elsewhere, potentially tumbling commodities could also be sapping demand for the ‘Aussie’ after industrial profits fell in China. The world’s second largest economy, and Australia’s main trading partner, has struggled to bounce back after the strict anti-Covid measures. With profits falling 22.9% in January and February compared with last year, commodities could take a hit with falling demand.

The latest developments in the Ukraine invasion could also be weighing on market sentiment. Russia has decided to station nuclear weapons outside its own borders for the first time since the mid-90s. Fears of escalating conflict could be sapping demand, the ‘Aussie’ could continue to struggle.

GBP/AUD Exchange Rate Forecast: BoE Speech to Bolster the Pound?

Looking ahead, the Pound Australian Dollar exchange rate could see further daylight between the currency pairing on a hawkish speech from Bank of England Governor Andrew Bailey. Attending an event at the London School of Economics, Bailey is scheduled to discuss the UK economy and its context in the wider global economy. Any hints on how the central bank intends to bring inflation down, Sterling could climb.

Elsewhere, retail sales are due to be released for Australia in the overnight session. An expected modest increase in sales could boost the ‘Aussie’. An expected 0.4% follows a strong 1.9% increase in the previous month, highlighting the resilience of the retail sector.

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TAGS: Pound Australian Dollar Forecasts