GBP/AUD Down Over 0.5% on BoE’s Unexpected Dovishness

GBP/AUD is declining in early trading on Monday. Currently, one British pound buys 1.8814 Australian dollars, down 0.53% as of 6:20 AM UTC. If the pair ends the session in red, this will be the fifth bearish day in a row.

The pound intensified its bearish stance after Bank of England (BoE) Governor Mark Carney said that the central bank might cut the interest rate later this year if economic weakness persists. His comments took the market by surprise. Now investors price in a potential rate cut in the coming months.

After Carney, who will leave his position in March, other members of BoE’s Monetary Policy Committee (MPC) expressed their readiness to support a rate cut. During the last two meetings of the MPC last year, two out of nine members already voted to reduce the benchmark interest rate from 0.75% to 0.50%.

On Friday, MPC member Silvana Tenreyro admitted that she would be inclined to vote for an interest rate cut in the coming months if the GDP growth does not accelerate. She said during an event:

“If uncertainty over the future (EU) trading arrangement or subdued global growth continue to weigh on demand, then my inclination is towards voting for a cut in Bank Rate in the near term.”

Right after Tenreyro’s comments, financial markets priced in a 60% chance of a rate cut by the middle of this year.

Yesterday, the probability moved even higher after BoE policymaker Gertjan Vlieghe said he would vote for a rate cut as early as later this month. He stated that only an “imminent and significant” economic improvement could change his mind.

The UK is set to release gross domestic product (GDP) growth data later today. Besides, it will also report on business investment, construction output, industrial production, manufacturing production, and trade balance. Thus, the GBP/AUD pair will continue to be volatile.

Elsewhere, Australia continues to fight with its wildfires. On Friday, the government urged about 250,000 residents to evacuate their homes. Daniel Andrews, the premier of Victoria, said:

“We know that we have many weeks of the fire season to run.”

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