Pound Australian Dollar (GBP/AUD) Exchange Rate Firms as UK Avoids Recession

GBP/AUD Exchange Rate Buoyed Following UK GDP Figures

The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is trending higher this morning as markets react to the latest UK GDP figures.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8658, up roughly 0.3% from the day’s opening rate.

Pound (GBP) Steady as UK Economy Returns to Growth

The Pound (GBP) found some modest support this morning in response to the UK GDP release.

According to data published by the Office for National Statistics (ONS) the UK economy expanded by 0.3% in the third quarter, rebounding from a 0.1% contraction in the second quarter.

While this was below the 0.4% expansion forecast by the Bank of England (BoE) last week, GBP investors appear to be relieved that the UK avoided falling into a recession.

However, the upside in Sterling was still limited as the annualised figures show UK GDP is at just 1.0%, its slowest pace since 2010.

The ONS said:

‘Services again led the way, with construction also performing well. Manufacturing failed to grow, as falls in many industries were offset by car production bouncing back following April shutdowns.

‘Looking at the picture over the last year, growth slowed to its lowest rate in almost a decade.’

The accompanying business investment report also capped the mood around the Pound, with investment flat lining as Brexit uncertainty caused firms to limit spending.

Australian Dollar (AUD) Undermined by Risk-Off Mood

The Australian Dollar (AUD) opened this week’s session on the back foot, undermined by renewed US-China trade uncertainty and unrest in Hong Kong.

Optimism was high last week after a Beijing official suggested the US and China were considering rolling back some tariffs as part of a ‘phase 1’ trade deal.

However US President Donald Trump subsequently cast doubts on this as he told reporters he had not yet agreed to anything regarding tariffs.

Adding to the risk-off atmosphere at the start of the week is the escalating protests in Hong Kong in which a protestor was shot in clashes with the police.

GBP/AUD Forecast: Dip in UK Wage Growth to Weaken Sterling?

Looking ahead, the Pound to Australian Dollar (GBP/AUD) exchange rate may slip tomorrow, with the publication of the UK’s latest jobs report

Unemployment is forecast to have held at 3.9% in September, with Brexit uncertainty resulting in a slowdown of new hires in the private sector at the end of the third quarter.

Greater focus may be put on the accompanying average earnings figures however, with Sterling sentiment potentially souring if wage growth slowed in September, putting more pressure on the Bank of England (BoE) to cut rates in early 2020.

In the meantime the publication of Australia’s business confidence index could weaken the ‘Aussie’ in overnight trade, with business sentiment expected to remain pessimistic as a result of continued US-China trade uncertainty.

Matthew Andrews

Contact Matthew Andrews