The British pound is higher against the Australian dollar on Thursday afternoon in a huge intraday move that has taken the exchange rate back to 3 1/2 -year highs and the highest since the EU referendum result. The trigger for the move was the decision by the Bank of England to hold interest rates steady when there was widespread speculation that UK rates could be lowered.
GBP/AUD was higher by 228 pips (+1.18%) to 1.9503 with a daily price range of 1.927 to 1.951 as of 2pm GMT. The exchange rate had been flat in the early hours before the BOE decision and skyrocketed afterwards, only finding resistance at multi-year highs near 1.95
GBP/AUD – The pound
Despite prognostications of lower rates by multiple policymakers in the lead up to the meeting, the Bank of England eventually decided to keep interest rates unchanged at 0.75%. Some of the justifications for the talk of lowering rates in the run up to the meeting were used as reasons to lower economic growth targets as well as the central bank’s so-called forward guidance.
As a reminder, ‘forward guidance’ is the name central bankers give their forecasts for what interest rates will be in the next one to two years. It is generally understood that most central banks have a terrible track record for predicting how they will set interest rates in the future. This is particularly the case at the Bank of England were Governor Mark Carney was compared to an “unreliable boyfriend”.
The forward guidance is normally a part of the official statement or minutes that accompany the meeting. In its December statement, the Bank of England said it expected to make “limited and gradual” rate rises. These words were removed and replaced in January with “some modest tightening”. Governor Carney explained the change by saying “limited and gradual implied multiple rate rises, and that’s not expected”.
So while the central bank has not opted to cut interest rates this time, it plans to hike rates at a slower pace in the future.
