Decreased UK Recession Risk Buoys Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate

Pound Australian Dollar (GBP/AUD) Exchange Rate Rises as UK GDP Beats Expectations

The Pound Sterling Australian Dollar (GBP/AUD) exchange rate rose and the pairing is trading at an inter-bank rate of AU$1.7998.

Monday’s UK GDP data sparked hopes a recession in the UK could be avoided as the economy, aided by the services sector, expanded by a higher-than-forecast 0.3% in July.

However, the wider picture revealed the UK economy weakened in 2019 and in the three months to July growth stagnated.

Commenting on July’s GDP data, Head of Economics at the British Chambers of Commerce (BCC), Suren Thiru noted:

‘Although there was a rise in GDP between June and July, the zero-growth recorded on the underlying three-month measure points to an economy under pressure from uncertainty over Brexit and weakening global economic conditions.

‘While the near-term outlook remains challenging, the UK economy should avoid entering a recession this quarter.

‘Avoiding a messy and disorderly exit from the EU is critical as such an outcome would likely deliver a major negative shock to the economy.’

Australian Dollar (AUD) Slumps Despite Jump in Aussie Home Loans

The Australian Dollar slumped despite investor lending for housing in Australia accelerating at its fastest rate in three years.

This could see the Reserve Bank of Australia (RBA) tightening lending standards after its back-to-back rate cuts attracted investors back to the property market.

The value of home loans edged up 5.3%, seeing gains across every state and providing the ‘Aussie’ with an upswing of support.

Commenting on this, ANZ economists Adelaide Timbrell and Felicity Emmett noted:

‘The RBA is unlikely to be impressed by these numbers. It would not want a repeat of the housing boom that we had prior to 2017, given already high levels of household debt.

‘It is also conscious of the impact that strongly rising house prices have on inequality. If this sort of growth in housing finance persists, we expect the regulators would begin to consider macro-prudential controls rather than later.’

France Unable to Support Brexit Extension in ‘Current Circumstances’

Meanwhile, Sterling edged up as parliament prepared to vote for the second time on Boris Johnson’s motion for an early general election.

The Prime Minister is expected to be defeated as opposition parties want the Brexit delay bill to be implemented before an election.

However, reports have suggested there is some uncertainty whether the European Union will grant a further extension.

Jean-Yves Le Drian, French foreign minister has stated his country is unable to support a further delay ‘in the current circumstances’.

Speaking to Europel radio he added:

‘We are not going to go through this every three months.’

Meanwhile, the European Parliament’s Brexit negotiator, Guy Verhofstadt stated:

‘Le Drian is right: yet another extension for Brexit is unacceptable unless the deadlock in London is broken. Let it be a second referendum, new elections, a revocation of Article 50 or the approval of the deal, but not today’s helpless status quo.’

Pound Australian Dollar Outlook: Falling Business Confidence to Weigh on AUD

Looking ahead to Tuesday, the Australian Dollar (AUD) is likely to slump against the Pound (GBP) following the release of NAB’s business confidence.

If business confidence slides further than expected and Chinese inflation data disappoints it is likely the ‘Aussie’ will slide.

Meanwhile, UK average earnings data could buoy Sterling on Tuesday.

If earnings rise higher than expected in July, the Pound Australian Dollar (GBP/AUD) exchange rate is likely to rise.

Millie Empson

Contact Millie Empson