GBP AUD Recovers from Three-Day Slump

GBP AUD Flat as Both Countries Face Restrictions

The GBP AUD exchange rate was higher by 0.35% as the pound sterling versus Australian dollar recovered from sharp three-day losses. Today sees the release of GDP numbers for the UK but the latest restrictions will remove any positives from the numbers. Traders now expect the Bank of England to wait until next year to raise interest rates.

The GBP AUD exchange rate was trading at 1.8455 ahead of UK GDP numbers.

Bank of England to wait out the coronavirus variant

The Bank of England will likely wait until early next year before hiking borrowing costs, as it seeks further information on the impact of the plan B restrictions, according to a Reuters poll.

A slim majority of economists expected a rise from 0.10% to 0.25% on Dec. 16 back in November. But BoE policymaker Michael Saunders, who voted for an interest rate rise last month, said he wanted more details about the new variant this time.

“While the Dec. 16 meeting has looked like an incredibly close call at times, we think the MPC will vote unanimously to keep rates on hold, amid the considerable uncertainty around the COVID-19 situation,” said Elizabeth Martins at HSBC.

“One of the reasons we have been saying since the summer for why February is the earliest likely time for a hike is because of the risk of a winter wave of COVID-19 weighing heavily on economic activity.”

The UK economy was expected to expand 1.0% this quarter but slow to 0.8% next quarter and to 0.7% in Q2.

However, The Institute of Economic Affairs said this week that Plan B measures from the UK Government could “easily knock” 2% off the country’s GDP. It also warned that Rishi Sunak could launch further support schemes to help struggling sectors and companies, increasing the country’s huge debt pile.

Chinese property market still showing cracks

Chinese property giant Evergrande was officially declared in default for the first time, admitting that it cannot pay its debts.

Fitch Ratings downgraded the company on Thursday night after it failed to make repayments on bond debt. The downgrade could cause contagion across Evergrande’s wider $A420 billion debt.

Evergrande’s problems saw a Chinese government crackdown on real estate lending, which hit the value of Australia’s biggest export, iron ore, which has halved in the last four months.

China’s zero covid policies and efforts to reduce carbon emissions are also likely to weigh on the economy in the next quarters. The spot price of iron ore has halved from $US200 a tonne to $US99 since July.

Despite the setback, Australia continues to see monthly trade surpluses and alongside higher public spending, that has propped up the lockdown-hit economy.

Meanwhile, China has said that Australia, the United States, the United Kingdom and Canada will “pay the price” for a diplomatic boycott of the Beijing 2022 Winter Olympic Games.

The move will further inflame tensions between Australia and its largest trade partner.