Last Week for GBP/AUD: Sterling Rallies as Escalating Trade Tensions Weigh on the Australian Dollar
The Pound Sterling Australian Dollar (GBP/AUD) exchange rate traded higher during last week’s session, propelled by rising trade tensions between the US and China – Australia’s largest export markets – and some disappointing Australian labour market statistics.
The Trump administration approved a fleet of fresh tariffs targeting $50bn in Chinese imports, once again citing China’s alleged unfair use of foreign intellectual property, sizable trade tariffs against US imports and substantial trade surplus.
This news immediately destabilised markets, leaving the riskier commodity currencies like the Australian Dollar and the New Zealand Dollar stumbling as investors fled to safer shores.
In other news, Australia’s labour market performance was rather weak, with the meagre employment gains led wholly by part-time work.
This seemed to reaffirm the existence of slack within the labour market, and laid to rest any hopes that the Reserve Bank of Australia (RBA) will be raising interest rates anytime soon.
This Week for GBP/AUD: Sterling Tumbles as BCC Downgrades UK Growth Forecasts
The Pound Australian Dollar (GBP/AUD) exchange rate kicked off this week on worse form, falling as investors responded to a disappointing downgrade in the British Chambers of Commerce (BCC) GDP growth forecasts.
According to the group, consumer spending, business investment and trade are all weakening for the UK, with Britain apparently trapped in a ‘torpor’ due to Brexit uncertainty and global trade tensions.
The BCC cut its UK growth forecast for 2018 down from 1.4% to 1.3%, whilst the 2019 forecast was also lowered from 1.5% to 1.4%.
These these pessimistic forecasts were at odds with the UK’s economic recovery demonstrated in Q2 this year and seemed to fail to take into account the strength of the UK’s labour market.
Nonetheless, investors were put off by the news.
For the Australian Dollar, investors were surprised to see it rally despite the current fall in Asian financial markets.
Both Singapore’s Straits Times Index and the Hong Kong Hang Send Index traded lower, whilst the Chinese Yuan (CNH) also came under massive pressure due to the tariff exchange between the US and China.
Surprisingly, however, the ‘Aussie’ Dollar seemed to decouple from their influence, rising without notable economic data release or political development.
Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: BoE Rate Decision in the Spotlight
Looking ahead, investors will be paying close attention to this week’s Bank of England (BoE) rate decision, due on Thursday.
Analysts do not currently expect a rate rise on this occasion, but the accompanying statement and remarks from BoE Governor Mark Carney could make or break investor hopes for a rise in August this year.
If Mr Carney does prove hawkish then we could see GBP/AUD rally.
If he remains tight-lipped, however, then the Pound Australian Dollar (GBP/AUD) exchange rate could claw back its recent losses.
For the ‘Aussie’ Dollar, investors will be keen to assess tomorrow’s Reserve Bank of Australia meeting minutes, but given the current cautiousness of the RBA it seems unlikely that they will do much beyond harming demand for the Australian Dollar.