Pound Australian Dollar (GBP/AUD) Exchange Rate Muted as UK Data Disappoints
(Updated 16:45, 12/8/21) The Pound Australian Dollar (GBP/AUD) exchange rate has struggled to make any meaningful gains today, despite the Australian Dollar’s (AUD) weakened position, following some disappointing data from the UK.
While UK GDP surged by a huge 4.8% for the second quarter of this year, the figure is less impressive when considering the wider context of the global recovery.
The rapid growth comes after a 1.6% contraction in the first quarter of this year, meaning GDP grew at a far slower rate for the whole of 2021 so far. UK GDP is still 4.4% below its pre-pandemic peak, putting it at the bottom of the G7 in terms of GDP recovery.
In addition, the UK industrial production, business investment and balance of trade figures all printed below predictions, keeping GBP/AUD subdued despite a weaker ‘Aussie’.
Original article continues below:
Pound Australian Dollar (GBP/AUD) Exchange Rate Gains on UK GDP
The Pound Australian Dollar (GBP/AUD) exchange rate is strengthening today after official data showed that the UK’s GDP grew by 4.8% in the second quarter of this year.
Meanwhile, the Australian Dollar (AUD) remains under pressure from Australia’s recent outbreaks of coronavirus and subsequent lockdowns, which have weighed on the country’s economy.
Pound (GBP) Firms on GDP, Upside Limited
The Pound (GBP) is strengthening against the ‘Aussie’ today, after the UK’s latest GDP figures showed that the UK economy rebounded strongly in the second quarter of this year.
UK GDP grew by 4.8% from April to June compared to the previous quarter as the lifting of lockdown restrictions saw a massive boost in service-sector activity.
This 4.8% GDP growth rate was more than double the 2% growth rate in the Eurozone and over triple the quarterly rate of the US, which grew by just over 1.5%
The growth for June was particularly impressive, printing at 1% versus the 0.8% expected – almost twice as rapid as the 0.6% growth in May – despite the government’s decision to delay ‘freedom day’ until 19 July. A 1.5% expansion in the services sector helped to boost June’s figures, with services accounting for 80% of the UK’s GDP.
Ruth Gregory, a UK analyst at Capital Economics, said that a 7.3% surge in consumer spending had been the main driver of growth, but that a 6.1% increase in government spending and a 2.4% rise in investment also boosted the economy.
Rishi Sunak, the Chancellor of the Exchequer, said:
‘Today’s figures show that our economy is on the mend showing strong signs of recovery, thanks to our Plan for Jobs and successful vaccine programme.
‘I know there are still challenges to overcome, but I feel confident in the strength of the UK economy and the resilience of the British people. With the fastest quarterly growth rate among the G7 economies, we have exceeded expectations, and I’m pleased to see the UK bouncing back.’
However, some economists have pointed out that the fast quarterly growth rate is less impressive than it initially seems as it represents a bounce back from the previous quarter’s 1.6% contraction. When comparing quarterly GDP with pre-pandemic levels, the UK is 15th among the 18 OECD countries that have published GDP results so far.
In addition, the strong GDP growth has been tempered by some less impressive data releases.
UK industrial production contracted month-on-month by 0.7%, though it was forecast to expand by 0.3%. Business investment also fell short of predictions, printing at 2.4% rather than 10.5%. And the UK’s trade deficit widened by more than expected to £2.5bn, as exports fell 1.5%.
As such, the Pound’s gains seem to be capped this morning, and it is struggling against some of its stronger rivals.
Australian Dollar (AUD) Pressured by Continuing Lockdowns
Meanwhile, the ongoing coronavirus situation in Australian continues to weigh on the Australian Dollar.
The Australian Capital Territory went into lockdown at 07:00 GMT this morning after the Australian capital of Canberra recorded its first Covid-19 case in over a year.
Large parts of New South Wales are already locked down, as is the city of Melbourne in Victoria, as the highly contagious Delta variant continues to spread through the country.
Australia’s zero-Covid strategy worked through much of the pandemic, but the new Delta variant has caused large-scale disruption in recent months.
The country’s continued use of lockdown measures has dented the economy and riled citizens, with anti-lockdown protests breaking out in the affected areas. But with only 18.6% of the country fully vaccinated, officials are worried about the damage the virus could do if left unchecked.
The latest lockdown is weighing on the ‘Aussie’ today, which is posting losses across the board.
GBP/AUD Exchange Rate Forecast: Lockdowns to Keep AUD Depressed
With the latest lockdown having come into effect earlier this morning, it’s unlikely that the Australian Dollar will be able to make any significant gains for the rest of the day. While some small fluctuations in GBP/AUD are to be expected in the medium-term, the pair remains close to yearly highs.
With the UK’s mixed data this morning, it’s hard to say which way the Pound will go as the day progresses. It’s likely that any upside will be limited as markets digest the different reports.
Meanwhile, the UK’s weekly Covid cases figure continues to rise. Covid optimism has supported Sterling over the last two weeks, but this could fade and leave the Pound open to losses if cases keep going up.