UK Inflation Uptick Fails to Drive Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Rally
An unexpectedly sharp uptick in the UK consumer price index was not enough to give the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate any significant boost this morning.
The headline inflation rate surged to 1.8% year-on-year in January, hitting a six-month high thanks to a resurgence in price pressures.
However, as the monthly inflation data showed signs of weakness, contracting -0.3%, this limited the potential for Pound Sterling (GBP) gains.
A better-than-expected Westpac leading index helped to keep a floor under the Australian Dollar (AUD), meanwhile, as confidence in the outlook of the Australian economy saw an improvement.
Pound Sterling Boost Possible on Stronger Retail Sales Growth
The mood towards the Pound could see a more substantial improvement on Thursday, however, if January’s UK retail sales data impresses.
After the -0.8% monthly decline seen in December markets are hoping for evidence that consumer spending rebounded at the start of 2020, reflecting a general improvement in domestic sentiment.
If sales return to positive growth this would give investors fresh cause for optimism, as stronger consumer confidence could help to limit the impact of any manufacturing weakness.
As long as signs point towards a stronger performance for the UK service and retail sectors in the first quarter this should further undermine the case for any Bank of England (BoE) interest rate cuts.
Rising Australian Unemployment Forecast to Dent Australian Dollar
Support for the Australian Dollar, meanwhile, looks set to weaken as markets brace for the release of the latest set of Australian labour market data.
With forecasts pointing towards an uptick in January’s unemployment rate from 5.1% to 5.2% AUD exchange rates appear vulnerable to a fresh bout of selling pressure.
Unless a rise in the unemployment rate is accompanied by an improved participation rate the mood towards the Australian Dollar looks set to sour on Thursday.
Although the Reserve Bank of Australia (RBA) appears reluctant to cut interest rates again in the near future signs of a weakening labour market could prompt policymakers to take a more dovish outlook.
GBP/AUD Exchange Rate Braces for Latest UK Manufacturing and Services PMIs
Further volatility is likely in store for the GBP/AUD exchange rate ahead of the weekend thanks to February’s flash UK manufacturing and services PMIs.
If the manufacturing sector slips into a fresh state of contraction as feared this could drag the Pound lower against its rivals.
However, even a sharp downturn in manufacturing sector activity may be offset by a stronger showing from the services PMI.
As long as the service sector demonstrates continued growth, increasing the odds of a positive first quarter performance, this should offer GBP exchange rates a solid leg up.
A disappointing services PMI, though, may encourage investors to sell out of Pound Sterling as anxiety over the outlook of the UK economy lingers.