GBP/EUR: Comments From Bank Of England Drive Pound vs. Euro

The British pound is lower against the Australian dollar on Thursday.

Some well-received economic data from China bolstered demand for the Australian dollar as a preferred proxy in FX markets for China’s economy.

Sterling saw a short-term bounce following the Bank of England decision but was lower again within two hours. UK interest rates were held steady but Bank of England Governor Bailey suggested further easing could come in June.

GBP/AUD was down by 268 pips (-1.38%) to 1.9011 as of 4pm GMT.

The currency pair stalled near 0.93 and rolled over a big 300 pips before steadying near 1.90. Yesterday the exchange rate fell -0.26% and this week it is lower by -2.37%.

GBP: More quantitative easing on the horizon

No immediate expansion of the Bank of England’s money-printing programs was brushed off by traders who are looking at it happening at the next meeting in June. The Bank of England decided to leave interest rates at a record low 0.1% and keep its bond purchases the same.

The UK’s slow exit from lockdown, the highest number of deaths from the coronavirus in Europe and post-Brexit uncertainty all suggest the Bank of England will need to act again.

The UK central bank offered an “illustrative scenario” rather than a GDP forecast because of the uncertainty of the situation of the UK economy contracting by an eye-watering -14% in 2020. That would be the worst economic performance in 300 years, however it expects and equally strong rebound of +15% in 2021.

AUD: Australia GDP to drop half of UK amount

The economic contraction predicted for the UK by the BOE is more than double the -6% loss in GDP expected in Australia by the Reserve Bank of Australia. It highlights the big economic divergence the coronavirus might be about to cause between the UK and Australia that is currently being priced into current markets via a strong Australian dollar.

Another multi-million increase in US jobless claims hit sentiment in the FX market, with the dollar rising while the pound dropped to fresh 3-month lows versus the Aussie.