The British pound (GBP) is considered the oldest currency in the world still in circulation. A well-developed English-speaking global financial market, the UK’s status as an attractive investment destination and London’s position as a leading foreign exchange centre have all helped make the pound sterling the fourth-most actively traded currency globally.
The Aussie dollar, in comparison, is regarded as a ‘risk-on’ currency thanks to the country’s high exposure to commodities exports to China and its sensitivity to global growth, making it the world’s sixth most-traded currency.
The GBP to AUD rate sets out how many Australian Dollars can be bought for 1 British Pound. The pair is popular among forex traders due to the significant economic ties between the United Kingdom and Australia.
The combination has been volatile over the last 12 months, sinking to its lowest level in March 2023 soon after the first signs of US banking troubles, and peaking in August amid a rate-hiking cycle by the Bank of England.
Related: AUD to USD Forecast: Dollar Could Fall Further Amid US Recession Fears
Great British Pound: Current Outlook in 2024
The British pound has been one of the best performers over the past 12 months, rising against most major currencies as the Bank of England ramped up rates to control an inflation problem that was worse than other economies. While rate hikes have ended, that upward trend looks set to continue.
The bullishness has contrasted sharply with the pessimism about the UK economy, where growth has been anemic and the country has been beset by strikes and labour shortages as it struggles with life outside of the European Union.
Markets were delivered a surprise this month when data confirmed the UK economy slid into recession in the December quarter.
Despite that, the pound has seemingly become more attractive as monetary tightening weighs down other major economies such as the US and Europe, even as activity is picking up in Britain, albeit from a low base and its labour market has proved remarkably resilient. This indicates a possible soft landing that won’t force the UK’s central bank to cut rates too quickly.
“The Bank of England appears to have the most reason to delay rate cuts among the key G10 central banks given still-high services inflation and wage growth, as well as a stabilising economic outlook for 2024 after a technical recession was confirmed for the end of 2023,” says Charu Chanana, Head of FX Strategy at Saxo Markets.
Money markets expect the BOE to begin cutting rates from their 16-year high of 5.25%, but only in August compared to expectations of June for both the US Federal Reserve and the European Central Bank. Indeed, investors are betting on further strength in the currency, despite the pound climbing more than 5% against the US dollar in the last year, and staying high around $1.27.
What Drives the Australian dollar?
By contrast, the Australian dollar has underperformed against most of its developed world peers over the last 12 months as the Reserve Bank of Australia has lifted rates at a slower pace than other central banks, raising the differential in interest rates.
The AUD is already down nearly 5% against the USD so far this year and around 4% against the GBP.
Over the last year, the AUD bottomed out against the US dollar in October 2023 when fears peaked that the US Federal Reserve would continue with its monetary tightening campaign, hitting risk sentiment.
Since then, however, global equities and other risk-assets have staged a sharp recovery, which has allowed the AUD to claw back some ground. It has weakened again in recent weeks amid a concerted pushback by major central banks against market speculation about early rate cuts.
The local currency’s performance is determined by a number of factors, but the main one’s in play this year have been the potential for interest rate cuts globally, as well as the deteriorating economic performance of Australia’s biggest trading partner.
“The RBA is likely to keep pace with the Fed in cutting rates, but the key focus for AUD will be the economic and policy momentum in China,” Chanana says.
Related: USD to AUD: USD to Remain Strong in Face of Global Shocks
AUD To GBP Exchange Rate
At the time of writing, £1.00 (GBP) is equal to $1.95 AUD, implying one British pound can buy nearly two Australian dollars.
Typically, buyers of AUD want a high rate and buyers of GBP want a low rate.
Over the last year, the GBP/AUD rate hit its lowest level (1.78) in March 2023 when problems in the global banking sector surfaced. It peaked in August (around 1.99) amid expectations of further rate hikes by the BOE.
The pound has risen nearly 9% against the Australian currency, largely reflecting the interest rate differential between the two countries. While the RBA cash rate currently stands at 4.35%, the BOE rate is 5.25%.
With Australia’s economy likely to be more stable than the UK in 2024, the RBA is expected to cut rates earlier than the BoE, meaning traders looking for yield see an advantage in being long on the British Pound while shorting the Aussie dollar.
GBP To AUD: Six-Month Forecast
The foreign exchange market expects the GBP’s gains against major currencies, including the AUD, to continue in the near term. Supporting this sentiment is the still-high inflation reading in the UK and the likelihood of tax cuts by the British government next month in what could be its last budget ahead of an election.
Inflation in UK stores slowed to the lowest level since March 2022, marking a ninth consecutive monthly decline, but it is still double the BOE’s target, which may warrant a more cautious approach from policymakers.
“There may be some more room for GBP to remain supported, especially if tax cuts in the March 6 budget announcement remain credible,” Chanana said.
“However, price pressures are starting to ease, which will give room to the BoE to start discussing rate cuts.”
GBP To AUD: 12-Month Forecast
Over a longer timeframe, the GBP/AUD rate is expected to ease as interest rates are gradually pared back by central banks in both countries.
If the UK’s inflation rate begins to taper off quickly, it could put pressure on the country’s central bank to cut rates, prompting the British Pound to give up its recent gains.
Traders have brought forward the expected timing for the BoE’s first quarter-point reduction by one month to August given the more benign outlook. Money markets are pricing at least two Bank of England rate cuts this year with more to follow in 2025.
But the pound’s bullishness is likely to come under pressure even if the rate cuts don’t materialise. Saxo’s Chanana says stagflation (high inflation in a stagnant economy) is a real risk for the UK economy amid Brexit woes, and that will constrain the choice of support measures for UK policymakers.
“I would expect to see the pair trending lower by the end of Q2 2024, with the UK economy facing serious recession or stagflation threats,” she said.
“Expanded support measures from Chinese authorities are also likely to keep AUD supported, and that will further underpin a broader downtrend in GBP/AUD.”
