GBP/AUD Exchange Rate Slides Following Plunge in UK GDP
The Pound to Australian Dollar (GBP/AUD) exchange rate is trading on the back foot this morning after the UK’s reported its largest monthly decline in growth on record.
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8328, down roughly 0.4% from this morning’s opening rate.
Pound (GBP) Undermined by Dire GDP Reading
The Pound (GBP) has relinquished ground against the Australian Dollar (AUD) this morning, in response to the UK’s latest GDP figures.
According to data published by the Office for National Statistics (ONS), the UK economy contracted a staggering 20.4% during the country’s first full month of lockdown.
GDP fell by a record 20.4% in April; services fell 19.0%, manufacturing fell 24.3% and construction fell 40.1% https://t.co/LTjMFBn4om pic.twitter.com/x9kBJKerQZ
— Office for National Statistics (ONS) (@ONS) June 12, 2020
This was down from a 5.8% slump in March and was even worse than the 18.4% decline that had been predicted by economists.
Given economic activity was severely impacted by the UK’s lockdown measures the dramatic slump doesn’t come as that great of a surprise to GBP investors.
But more worrying is that analysts believe it could take some time for the UK economy to right itself as the UK government’s social distancing restrictions looks likely to threaten growth for some time.
James Smith, developed markets economist at ING, comments:
‘Social distancing constraints, consumer and business caution, as well as Brexit, all pose challenges to the UK economic recovery. This is set to keep the pressure on the Bank of England to continue expanding its balance sheet, and we expect a further increase in its quantitative easing programme next week.’
Australian Dollar (AUD) Mounts Tentative Recovery as USD Retreats
At the same time, the Australian Dollar (AUD) is on the rise this morning following a slight correction in the US Dollar (USD).
The US Dollar skyrocketed into overbought territory yesterday as investors flocked to the safe-haven currency amidst fears for a second wave of coronavirus infections and a souring of market optimism in the wake of the Federal Reserve’s gloomy forecasts for 2020.
However, this upside in the ‘Aussie’ is likely to prove limited, as market sentiment remains largely gloomy and the risk of renewed US-China tensions threatens to sour the mood further.
GBP/AUD Exchange Rate Forecast: Weak Data and BoE to Put More Pressure on Sterling?
Turning to next week’s session, the Pound to Australian Dollar (GBP/AUD) exchange rate is likely to be met by some notable volatility in response to a slew of high impact UK economic data and the Bank of England’s (BoE) latest rate decision.
On the data front, Sterling faces some potential hurdles, with a jump in unemployment and deteriorating inflation and retail sales likely to prove damaging to GBP exchange rates.
But it may be the BoE which puts the must pressure on the Pound, should policymakers allude to the possibility of exploring negative interest rates in the future.
Meanwhile, the ‘Aussie’ could also be undermined next week with the release of Australia’s own jobs report, with an expected surge in unemployment expected to weigh on AUD exchange rates through the latter half of the session.