GBP AUD Lower on RBA Governor Rate Outlook

GBP AUD Lower on RBA Governor Rate Outlook

The GBP AUD exchange rate was -0.40% lower on a speech from the RBA Governor Philip Lowe. His comments follow a rare television appearance last week with the central banker setting out a path for further interest rate hikes. The pound sterling has problems at home and abroad with the largest rail strikes in thirty years set to start and the Northern Ireland protocol squabble with Europe still ongoing.

The GBP to AUD rate was trading at 1.75560 after a recent bout of support for sterling.
Market prices in higher interest rates for Australia
Financial market traders increased their bets that the Aussie central bank will follow their US counterpart with a 0.75% rate hike.

The chance of such a move stands at 50/50 at the July or August meeting, following comments from the RBA Governor.

“The emergency is over and it’s time to remove the emergency settings and move to more normal settings for monetary policy,” Lowe said.

Mr Lowe also said that the RBA would do “what’s necessary” to bring inflation back to the 2-3% target and that it’s “reasonable” to expect that rates will rise to 2.5%.

The Reserve Bank predicted that headline inflation will hit highs of 7% by the end of the year before dropping in 2023. However, the RBA got it wrong last year with respect to inflation. It is now taking aggressive action to catch up to other central banks.

UK rail strike adds further stress to the UK economy

The beleaguered UK economy faces the largest rail strike in thirty years as workers strike over the inflationary effects to pay.

A return to industrial action is expected to cause six months of delays for commuters after the government dismissed union requests for pay rises to match inflation. The government said that post-pandemic behaviour changed the outlook. The rail network needs job cuts.
Mick Lynch, secretary of the RMT union has said that strikes could last into the autumn.
“We don’t want the disruption but if we don’t do anything, we’ll just be passive in the face of aggression. And we will lose the ground that we’ve made over the decades and we may lose our credibility as an organisation. We don’t have any choice,” he said.
The strike is another headache for the pound sterling which is still staring at the face of EU and European Commission retaliation over the amendment bill for the Northern Ireland protocol.

The pound will see the release of inflation figures on Wednesday with analysts expecting only a 0.1% rise to 9.1%. Any increase could spur a rebound in the British pound.
The BoE has said it would move “forcefully” if required to cool inflationary pressures which are dragging down real wages and leading to the looming strike action.

“I know and expect that you and the other members of the MPC will take the action necessary to get inflation back on target and ensure inflation expectations remain firmly anchored,” Rishi Sunak said in a recent letter to the BoE Governor Bailey.

To get in touch and receive further insight into the factors that could impact your overseas payments, click the button below and complete the form on the Lumon website.