GBPAUD has recently seen a breakout and will now face a BoE interest rate decision.
GBPAUD: Weekly Chart
The currency pair has moved above the 1.9150 level and trades at 1.94. Any pullback could target 1.85.
Analysts expect the Bank of England to raise its benchmark interest rate once again to 5.25%, but the bank is seen as having a battle between fighting inflation and risking recession. Investors will also be looking for clarification on the bank’s next moves with rates.
British consumer price inflation fell more than expected in June to 7.9% annually, down sharply from 8.7% in May. However, it remained the highest among the Group of Seven economies.
Core inflation, another measure of underlying price growth that excludes energy, food, alcohol, and tobacco, also eased but remained close to 31-year highs.
The personal consumption expenditures price index (PCE), which excludes food and energy, was up 3.8%, for the smallest gain since the first quarter of 2021, down from 4.9% seen in the January-March quarter.
This week saw the Reserve Bank of Australia take a second pause on interest rates down under. ING analysts said:
“It is a genuine mystery to us why there was a small majority of forecasters looking for a hike at today’s meeting. We certainly were not. The June inflation data came in better than most of the expectations, including on the core measures. So that alone should have been enough to keep the RBA on hold. And none of the other data since the last meeting has been particularly alarming”.
Governor Philip Lowe noted that further tightening “will depend upon how the economy and inflation evolve”.
“That doesn’t mean that there is no chance of any further tightening in this cycle. And while the June inflation figures were lower than expected, the month-on-month increase was not even close to what is required to get inflation back to target. And that will have to change,” ING added.
Later on Thursday will also bring a monetary policy statement from the RBA, which may clarify more of the bank’s thoughts on the economic outlook.
These trends should continue to see the pound advance higher against the Australian dollar, but that will depend on the BoE on Thursday.
