The GBP AUD exchange rate was higher by 1.20% after the latest Bank of England interest rate meeting. The Bank raised rates again to 1.25% and said that inflation in the Autumn could rise to 11%. In Australia, the Fair Work Commission surprised markets with a hike to the minimum wage and that could add also to inflation, according to analysts at Credit Agricole.
The GBP to AUD rate was trading at 1.7560 after a rally from the recent lows and has resistance further ahead at 1.17800.
Bank of England interest rate hike boosts pound sterling
The pound sterling has a chance to mount another recovery after strong gains against the Australian dollar.
The pound was spurred higher by the latest Bank of England interest rate hike which took UK rates to 1.25% and policymakers also increased their inflation target to 11%.
The BoE noted that the weak British Pound was a problem in its statement.
“Sterling had been particularly weak against the US dollar. According to market participants, the recent movements had in part reflected the rising yield differential between shorter-term government bond yields in the United States compared to those in the United Kingdom and perceptions of the UK growth outlook.”
Rupert Harrison, an economist at BlackRock said that the UK may already be in recession. Speaking to the BBC, Harrison said:
“We may already be in recession in the UK. It’s very very likely now that the second quarter is going to see negative growth. We may get some mechanical bounce back in the third quarter, partly for complicated reasons due to the Jubilee… But effectively growth is around zero and may get worse as we head into the autumn, particularly with energy prices going back up.”
Stock markets were lower on Thursday after a steep 0.75% interest rate hike from the US Federal Reserve on Wednesday evening hurt investor sentiment.
Bumper minimum wage hike would be inflationary, analysts say
Australia’s Fair Work Commission shocked the market with news that the minimum wage will be lifted by $1.05 an hour from its $20.33 base in July for an increase of 5%.
However, analysts fear that this could stoke the fire of inflation further in the coming months.
Valentin Marinov, Head of FX Strategy at Credit Agricole said the latest development would add to inflation and will pressure the Reserve Bank of Australia (RBA) to pursue further interest rate increases.
The decision by the Fair Work Commission “will add to wage and inflation pressures in the coming quarters and reinforces the RBA’s hawkishness,” says Marinov.
The pay increase for minimum wage workers came on a day when RBA Governor Philip Lowe continued to take a “hawkish” tone on interest rates.
Speaking to ABC News, the governor said:
“With inflation being as high as it is, and with interest rates as low as they are, we thought it was important to take a decisive step to normalise monetary conditions, and we did that at the last meeting”.
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.