Pound climbs back above $2 against the Australian dollar

The Australian dollar weakened against sterling yesterday, climbing above A$2 despite the release of a gloomy Bank of England forecast.

• The BoE suggested inflation may fall to 0.5 percent before rising, while the economy is expected to contract further over the next few months before recovering at a slower than expected pace.
  
• This news had the effect of dampening recent optimism that the UK economy was over the worst of its recession, while also leaving the door open for the BoE to extend its quantitative easing programme.
  
• However, the pound’s direction was largely determined by the return of risk aversion, with sterling climbing back above A$2 in the afternoon as investors sold off the riskier aussie dollar.
  
• Recent optimism over a potential recovery in the global economy had driven the high yielding aussie to 12 year highs against sterling. But weak economic data has dented this theory and will likely add further pressure on the aussie if this type of data continues.