The pound declined against the Aussie yesterday following the Bank of England’s decision to hold interest rates unchanged. The central bank also issued a weak economic outlook for the next 15 months. This fueled the pound sell-off. Overall, the GBP/AUD pair declined from a high of 1.8998 to a low of 1.8899 in the past 24 hours.
According to the Australian Bureau of Statistics (ABS), the country’s goods trade surplus declined to A$6.79 billion in September from A$10.16 billion in the previous month and missed forecasts of A$9.55 billion.
Exports fell by 1.40% m-o-m (or A$658 million) in September to A$45.62 billion, led by a 39.20% drop in non-monetary gold. Likewise, goods imports grew by 7.50% (or A$2.72 billion) to A$38.84 billion, driven by industrial transport equipment.
In the European session, following the monetary policy meeting, the Bank of England announced its decision to leave the benchmark interest rate unchanged at 5.25%, representing a 15-year high. The decision was in line with economists’ estimates. The central bank anticipates the UK’s inflation to decline further in the months ahead.
Specifically, in its statement, the central bank’s nine-member Monetary Policy Committee stated that inflation, as gauged by the consumer price index, is on track to decline towards the targeted level of 2% in the upcoming year. Notably, in the year to September, the UK’s inflation stood at 6.70%.
Several economists anticipate inflationary pressure to ease in the forthcoming months as the UK’s energy bills decrease.
In September, the central bank concluded a nearly two-year period of successive interest rate increases. Specifically, leading up to September, the Bank had implemented 14 consecutive rate hikes to mitigate the escalating inflation that had been exerting pressure on households. Nevertheless, Governor Andrew Bailey of the Bank of England clarified that this adjustment in monetary policy did not necessarily imply an imminent reduction in interest rates.
Despite the slow cooling of inflationary pressure, the central bank has indicated that it anticipates the need to maintain high interest rates for an extended period. The central bank anticipates a further decline in the UK’s inflation to 4.80% in October. The BoJ anticipates inflation to further decline next year as energy and food price rises alleviate.
The decrease in inflation suggests that Prime Minister Rishi Sunak is poised to fulfill his commitment to reduce inflation by 50% by the end of 2023, bringing it to approximately 5%. Nevertheless, his goal of boosting economic activity by the end of this year seems unlikely, as the BoE has downwardly amended its growth outlook.
Even though the BoE is not forecasting a recession, it anticipates no growth from the present time until the conclusion of the following year, coinciding with the upcoming general election and extending into 2025. The projections further indicate that in the forthcoming year, the UK’s inflation will remain above the central bank’s targeted level, of about 3%.
The BoE’s decision to hold interest rates is expected to keep the pound slightly bearish in the short term.
The historical price chart indicates that the GBP/AUD pair is descending after facing resistance at 1.9215. The next major support is anticipated only near 1.8690. Additionally, the currency pair is trading below its 50-day moving average, while the stochastic indicator is in the bearish zone. Therefore, we anticipate the GBP/AUD pair to remain in a downtrend in the near term.
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