Pound Australian Dollar (GBP/AUD) Exchange Rate Drops to Three-Week Low on ‘Stagflation’ Fears

The Pound Australian Dollar (GBP/AUD) exchange rate began the week on a strong footing, as the Pound (GBP) continued receiving support from the Bank of England (BoE)’s signal it would tighten monetary policy.

GBP/AUD fell over the course of the week, however, as British ‘stagflation’ fears exerted significant downside pressure.

What’s Been Happening: Trading Subdued on ‘Stagflation’ Fears, Chinese Power Cuts

Speculation over a possible interest hike in March initially buoyed Sterling sentiment during Monday’s session.

Through the middle of the week, however, the Pound fell against the Australian Dollar (AUD) on concerns over fuel shortages, which compounded fears of an economic slowdown in the UK.

‘Stagflation’ fears worried investors, with UK consumers being pressured by rising inflation at a time of economic uncertainty.

Meanwhile, the Australian Dollar suffered against the majority of its peers as a risk-off mood prevailed.

Power cuts across parts of China exacerbated risk aversion, breeding concerns that the world’s second-largest economy may be slowing.

Towards the end of the week, the Pound firmed slightly as the UK’s latest GDP figures impressed – the finalised Q2 release saw growth revised up to 5.5% from 4.8%.

GBP/AUD gains were short-lived, however, as risk-sensitive ‘Aussie’ sentiment was revived on increased market risk appetite.

Three Things to Watch Out for This Week

  1. UK Stagflation Fears

If UK ‘stagflation’ fears continue, GBP exchange rates could trend lower on lack of investor support.

  1. AU Balance of Trade

Australia’s balance of trade is expected to fall on last month, potentially causing AUD headwinds.

  1. RBA Interest Rate Decision

The Reserve Bank of Australia (RBA) will likely leave its interest rate unchanged. If policymakers strike a hawkish tone, AUD could find support.

Pound Australian Dollar Forecast

Finalised services PMI data from both the UK and Australia may influence GBP/AUD trading this week, especially if either are revised significantly from initial estimates.

Additionally, the Pound Australian Dollar exchange rate is likely to be influenced by ongoing risk sentiment in addition to external factors such as the UK fuel shortages and Chinese growth concerns.