Pound Australian Dollar (GBP/AUD) Exchange Rate Falls as UK Inflation Misses Forecast

Slow Progress on Post-Brexit Trade Deals Weighs on GBP/AUD Exchange Rate

UPDATE: Confidence in the Pound diminished further this afternoon thanks to a fresh bout of Brexit-based anxiety among investors.

Reports that the UK government is struggling to roll over EU trade deals with other countries ahead of the Brexit deadline raised fresh concerns over the UK’s future trade.

With future trade deals with just seven out of 69 countries secured the mood towards the Pound naturally deteriorated, leaving the GBP/AUD exchange rate on a weaker footing.

Easing UK Inflation Limits Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Momentum

Weaker-than-expected UK inflation data saw the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate soften this morning.

Even though investors had anticipated an easing in inflationary pressure the decline from 2.1% to 1.8% still weighed heavily on the appeal of Pound Sterling (GBP).

With the headline inflation rate having moved below the Bank of England’s (BoE) 2% target the case for higher interest rates appears to have diminished further.

However, the negative impact on the Pound was ultimately limited thanks to the latest market speculation over Brexit.

Bets that the March deadline could be extended in the face of the continued impasse over the Irish border helped to shore up GBP exchange rates today.

Australian Dollar (AUD) Benefits from Rising Consumer Confidence

A solid rebound in February’s Westpac consumer confidence index helped to shore up the Australian Dollar (AUD), meanwhile.

As the index reversed much of the previous month’s decline, rising 4.3%, this encouraged investors to buy back into the antipodean currency this morning.

Higher levels of consumer confidence bode well for the economic outlook, with increased spending having the potential to fuel stronger growth.

AUD exchange rates also benefitted from suggestions that the US could relax its deadline for the imposition of additional tariffs on Chinese goods.

This encouraged hopes that the US-China trade spat might not see a further escalation in the near future, benefiting the risk-sensitive Australian Dollar.

Solid UK Retail Sales Forecast to Boost GBP/AUD Exchange Rate

Demand for the Pound could pick up on the back of Friday’s UK retail sales data, provided that sales show an improvement on the month.

If the retail sector recovers from its disappointing performance in December the GBP/AUD exchange rate could find a rallying point ahead of the weekend.

However, if consumers continue to show signs of increased caution in the face of ongoing Brexit-based uncertainty this could limit the appeal of the Pound.

Unless sales reverse at least some of December’s monthly contraction GBP exchange rates may struggle to gain much traction on Friday, especially if Brexit jitters persist.

Weakening Australian Inflation Expectations Set to Weigh on Australian Dollar (AUD)

February’s Australian consumer inflation expectations reading may put the Australian Dollar under renewed pressure as forecasts point towards a continued deterioration.

With the Reserve Bank of Australia (RBA) already showing signs of increased dovishness any indication of weaker inflation could weigh heavily on AUD exchange rates.

As markets continue to weigh up the odds of the RBA potentially cutting interest rates the potential gains of the Australian Dollar are likely to prove muted.

On the other hand, if expectations suggest that inflation is likely to strengthen in the coming months this could prompt the GBP/AUD exchange rate to lose further ground.

Louisa Heath

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