GBP/AUD Exchange Rate Consolidates Gains Following Upbeat UK Inflation

GBP/AUD Exchange Rate Stable on UK CPI Figures

The Pound to Australian Dollar (GBP/AUD) exchange rate is holding in a narrow range this morning, following the publication of the UK’s latest inflation figures.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8155, virtually unchanged from this morning’s opening rate.

Pound (GBP) Steady as UK Inflation Beats Expectations

After jumping yesterday on the back of some fresh Brexit optimism, the Pound (GBP) looks to be consolidating its gains this morning, following the publication of the UK’s consumer price index (CPI).

According to data published by the Office for National Statistics (ONS), annualised inflation climbed from 0.5% to 0.7% in October, beating expectations for a more modest rise of 0.6% and accelerating at its fastest pace since July.

The month-on-month CPI also beat forecasts, as the UK narrowly avoided slipping into a state of deflation with a reading of 0%.

The uptick in inflation was reportedly driven by women’s clothing, with the rising cost of food, second-hand cars and video games also contributing, and offsetting the fall in energy and holiday prices.

While GBP investors welcomed the stronger-than-expected CPI release, it failed to translate into any meaningful gains for the Pound, likely as a result of forecast that the impact of coronavirus restrictions will result in inflation falling again in the months to come.

Debapratim De, senior economist at Deloitte, predicts:

‘October’s inflation figures have come in slightly above expectations. Yet they reflect a disinflationary environment, given the current backdrop of weak wage growth, rising unemployment and abundant spare capacity.

‘Inflation is likely to remain subdued until the economy regains most of the lost activity due to the pandemic.’

Australian Dollar (AUD) Stabilises Following Fading Vaccine Optimism

At the same time, the Australian Dollar (AUD) is mostly muted this morning, having clawed back some of its losses made in overnight trade.

The ‘Aussie’ fell back during today’s Asian trading session amid a weakening of market sentiment, which had previously been bolstered at the start of this week by the announcement of another potential coronavirus vaccine from Moderna.

This dip in sentiment comes amid concerns over surging coronavirus cases around the globe, particularly in the US.

Richard Hunter, Head of Markets at interactive investor, comments:

‘The initial vaccine euphoria is under pressure as Covid-19 cases continue to tick higher, highlighting the gulf between discovery and distribution.

‘With several US states implementing further restrictions and a further 70 000 hospitalisation cases, the impact on the economy remains in play.’

GBP/AUD Exchange Rate Forecast: Brexit Optimism to Underpin Sterling?

Looking ahead, the Pound to Australian Dollar (GBP/AUD) exchange rate may remain in a position of strength, amid hopes that a UK-EU Brexit trade deal could be close.

Recent reports suggest that a trade agreement could be signed ‘early next week’ so long as the two sides are able to close the gaps on a couple of outstanding issues.

However there remains the risk that Sterling could stumble, should no breakthrough be forthcoming.

In the meantime, the publication of Australia’s latest jobs report could put some pressure on the ‘Aussie’ overnight, as economists forecast the unemployment rate will have begun to accelerate again in October.

Matthew Andrews

Contact Matthew Andrews