Pound Australian Dollar Exchange Rate Dips after Slowdown in UK Inflation

The Pound Australian Dollar exchange rate dipped during this morning’s session.

A surprise slowdown in UK inflation did little to support Sterling sentiment.

At the time of writing GBP/AUD is currently trading at around AU$1.7987, as AUD was supported by flash PMI’s from Australia.

Pound (GBP) Knocked by a Slowdown in UK Inflation

The Pound found itself lower this morning after a slowdown in UK inflation for February surprised investors. 

UK inflation slowed to 0.4% in February down from 0.7% the month before, according to the ONS.

Paul Dales, the chief UK economist at the consultancy Capital Economics, commented on the data:

‘The surprise fall in CPI inflation, which displays the disinflationary effect from Covid-19 lockdowns, will delay the rebound to 2% and perhaps prompt the markets to reconsider their view that interest rates will rise next year.’

‘We doubt inflation will be persistently above 2% until 2023, so don’t expect rate hikes for a long time yet.’

The Pound did however find some support from flash PMI data for March.

The data showed that business activity in the UK returned to growth in March, led by the biggest increase in service activity since August.

Chris Williamson, chief business economist at IHS Markit, said:

‘The UK economy rebounded from two months of decline in March, with business activity growing at its fastest rate since last August as children returned to schools.

‘Businesses prepared for the reopening of the economy and the vaccine roll-out boosted confidence.’

Australian Dollar (AUD) Supported by Flash PMI Data

The Australian Dollar received a boost today from PMI data from Australia, with the private sector showing an overall growth.

Pollyanna De Lima, Economics Associate Director at HIS Markit, commented on the data:

‘Private sector companies benefited from strong gains in new work during March, which prompted them to lift output and continue with their hiring efforts. In particular, there were notable accelerations in growth rates for new orders and business activity across the service sector.’

‘The latest results rounded off a strong quarter for the private sector. The best since the second quarter of 2017, suggesting that the economic rebound through the second half of 2020 reported by the official statistics office will have extended into 2021.’

Pound Australian Dollar Exchange Rate Outlook: UK Retail Sales in Focus

For Pound investors, Friday sees the release of retail sales figures for February. The figures are expected to enter growth territory at 2.5% for February.

If the data does meet forecasts the Pound will be supported as the UK begins to reopen from the lockdown measures implemented at the start of 2021.

The UK will also be awaiting the latest EU summit tomorrow afternoon. A discussion over vaccine exports is expected to take place, which could affect the Pound’s sentiment.

In absence of any notable data from Australia, AUD will be driven by the global market mood in the coming days.

If the market mood begins to sour then the ‘Aussie’ could see itself heading lower against many of its counterparts.

Georgina Clissold

Contact Georgina Clissold