The Pound to Australian Dollar exchange rate recovered from its earlier dip on Tuesday as investors piled into the British currency after the day’s impressive UK inflation stats. The pairing recovered from 1.59 to 1.61.
Pound (GBP) Soars on Spiking UK Inflation
Sterling rebounded from its lows against the Australian Dollar as demand for the ‘Aussie’ weakened.
GBP/AUD went on to extend gains following the publication of Britain’s February Consumer Price Index (CPI), which came in well above expectations.
Inflation was expected to improve from -0.5% to 0.5% month-on-month, but instead jumped to 0.7%. The yearly figure was also impressive, beating projections of a rise from 1.8% to 2.1% by coming in at 2.3%.
This increase was caused primarily by rising food and fuel prices. It was above the Bank of England’s (BoE) 2% inflation target and the highest UK inflation rate since September 2013.
Following a hawkish attitude from Bank of England (BoE) policymaker Kristin Forbes last week due to rising inflation, this figure made investors even more hopeful that the BoE could soon be pressured into tightening monetary policy.
Australian Dollar (AUD) Slips on RBA Housing Market Concerns
Demand for the Australian Dollar slipped on Tuesday as investors reacted to this week’s most influential event on an otherwise quiet Australian economic calendar.
In its latest meeting minutes, the Reserve Bank of Australia (RBA) adopted a surprisingly dovish tone about Australia’s housing market.
The RBA warned of a ‘build-up of risks associated with the housing market’ due to rising investment borrowing and surging prices in Sydney and Melbourne.
Analysts perceived it as being the first time the RBA had mentioned the housing market risks so notably. While the bank took its expected neutral tone on monetary policy, this still left Australian Dollar investors jittery.
GBP/AUD Forecast: UK Retail Sales Ahead
After today’s inflation data, Pound investors will be even more eager to see how the UK retail sales sector performed in February.
In recent months, UK retail sales have faltered slightly as rising consumer prices squeeze households and prompt citizens to rein in their spending habits.
Retail sales are expected to improve from -0.3% to 0.4% month-on-month and from 1.5% to 2.6% year-on-year. If they come in as forecast, this could help the Pound consolidate gains.
However, if retail sales disappoint it will only worsen concerns that Britain’s key retail and services sectors will slow enough to damage the nation’s 2017 growth prospects.