I will be taking a trip to the UK in May next year. What is the likely scenario for the British Pound against the Aussie when America decides to increase interest rates?
A: Thanks for the question.
If US interest rates increase earlier than anticipated, this should give an immediate boost to the USD. While both the AUD and GBP will weaken, I would expect more weakness in the AUD due to:
a) the British economy is recovering quickly – interest rates can probably only go up; and
b) the AUD tends to weaken against all major currencies when it weakens against the USD.
Potentially getting in the way of this analysis is an election in the UK, which is due next year. Bottom line – I think the AUD is more likely to weaken against the GBP.
