Investors were not impressed when June’s UK consumer price index report surprised to the downside, with inflationary pressure dipping from 2.9% to 2.6% on the year.
While this could offer consumers some relief, somewhat easing the recent squeeze on earnings, this weaker showing prompted the Pound to slump sharply.
With inflation falling back the chances of the Bank of England (BoE) adopting a more hawkish outlook in the near future diminished. So long as inflation does not continue to accelerate in excess of the BoE’s target range the prospect of any interest rate hike remains decided limited.
However, the GBP AUD exchange rate found some support on the back of the latest raft of Australian labour market data.
The mood towards the ‘Aussie’ soured markedly on Thursday after May’s unemployment rate was revised up to 5.6% and held steady at that level in June. This undermined some of the recent sense of confidence in the health of Australian economy, putting renewed pressure on the antipodean currency.
RBA Talks Down Prospect of Interest Rate Hike
Demand for the Australian Dollar weakened further ahead of the weekend in response to commentary from Reserve Bank of Australia (RBA) policymakers.
Deputy Governor Guy Debelle noted that markets should not read too much into the central bank’s recent discussion of a neutral interest rate, taking the wind out of earlier investor speculation.
Altogether the signs continue to point towards the RBA leaving interest rates on hold for some time to come, giving markets little particular reason to favour the ‘Aussie’.
In spite of the International Monetary Fund (IMF) lowering its growth forecasts for the UK the mood towards Sterling turned somewhat bullish on Monday.
While the uncertainty of Brexit continues to hang over the outlook of the domestic economy this was not enough to prevent GBP exchange rates returning to an uptrend.
After hitting multi-month lows against many of its rivals the Pound experienced a rebound, benefitting from technical support.
Rising Australian Inflation Could Prompt AUD Rally
Comments from BoE chief economist Andy Haldane are likely to provoke volatility for the GBP AUD exchange rate on Tuesday evening.
Haldane’s dramatic shift from his position as the most prominent doves on the Monetary Policy Committee (MPC) to a significantly more hawkish line of rhetoric triggered strong gains for the Pound some weeks ago.
If the policymaker continues to make the case for higher interest rates this could encourage Sterling to trend higher across the board once again. However, any dovishness or lack of commentary on policy is likely to weigh heavily on the Pound.
A stronger rallying point could be in store for the Australian Dollar, meanwhile, if the second quarter inflation rate proves encouraging.
Forecasts point towards a modest uptick from 2.1% to 2.2% on the year, a result which could prompt fresh speculation over the possibility of the RBA returning to a policy tightening bias in the coming months.
Even so, a speech from RBA Governor Philip Lowe could limit any resultant ‘Aussie’ gains if he chooses to reiterate the current neutral outlook of the central bank.