by Jon Beddell
Foreign Currency Market Update – GBP / AUD Update
Last Wednesday was a big day for Sterling. It started with the publication of the minutes of the latest Bank of England meeting. They revealed a 3 way split in voting among the nine strong committee, with one member voting for an interest rate hike, one voting for further Quantitative Easing, and the rest sitting on the fence. Governor Mervyn King is somewhere between a rock and a hard place. The BoE’s mandate is to contain inflation in the medium term by raising interest rates to combat price rises, but rate hikes in the face of the new budget cuts would be a little hasty. All in all, the wait and see approach looks best. Then, setting the scene for the long awaited comprehensive spending review, was confirmation that the budget deficit hit a record high in September. The government borrowed £16.2bn in the month, the highest since modern records began. The day’s main event was the long awaited Comprehensive Spending Review. The announced spending cuts were largely in line with expectations, and the general consensus is that the government have taken drastic but unavoidable action, and that the BoE need to sit on their hands or be ready to provide QE if heroic measures are required to resuscitate the economy. The case for action may be building as retail sales for September came in well below forecasts, with a drop of 0.2% on the month, as well as a downward revision to the August figure.
Meanwhile in Australia, a strong producer price index reading for the third quarter has increased the likelihood of an interest rate rise in November. Most analysts now favour a 25 basis point hike, taking rates up to 4.75%, well above the 3% low set in 2009. This strikes a favourable contrast with the UK, where rates remain at record lows (0.5%) and look set to stay there for some time yet.
It could have been argued that much bad news was already reflected by Sterling’s recent fall, but the market was having none of it, and punished the Pound with a further 2 cent drop for the week. We have now spend two weeks trading below the previous record lows around 1.6250, and in the last two days seem to have broken free of that level all together. This is bad news for Sterling. The technical outlook is negative and a continued slide appears to be the most likely outlook.
Related posts:
- AUD Update – Sterling has seen a modest rebound after briefly touching record lows against the Aussie dollar
- Australian Dollar Update – Sterling plunged towards the 13 year lows against the Aussie yesterday
- Australian Dollor Foreign Exchange Forecast – Sterling testing all time lows…
- Australian Dollar Foreign Exchange Forecast – Sterling/Aussie dollar in a holding pattern…
- The Dollar declines against the majors as the price of crude oil hits another record level at $1.2960 a barrel
