GBP/AUD Exchange Rate Boosted by Upbeat UK Employment Data

Pound Australian Dollar (GBP/AUD) Strengthens as UK Unemployment Falls

After dipping on Monday, the Pound Australian Dollar (GBP/AUD) exchange rate has rebounded today following better-than-expected UK employment data.

Meanwhile, comments from Reserve Bank of Australia (RBA) Governor Philip Lowe that pushed back against aggressive market pricing for an interest rate hike also helped GBP/AUD strengthen, up over 0.3% since the start of the day to trade at AU$1.8334.

Pound (GBP) Buoyed by Better-than-Expected UK Jobs Data

The Pound (GBP) received a boost this morning following upbeat UK job market data. Unemployment in the UK fell to 4.3% in the three months to September, down from 4.5% the month before.

Payrolls data also provided evidence that employment continued to grow in October, after the end of the furlough scheme on 30th September.

The Office for National Statistics (ONS) estimates that employees on company payrolls increased by 160,000 to 29.3 million in October.

The ONS says:

“It is possible that those made redundant at the end of the furlough scheme will be included in the Real Time Information (RTI) data for a few further months, while they work out their notice period.

“However, responses to our business survey suggest that the numbers made redundant was likely to be a small share of those still on furlough at the end of September 2021.”

Signs of the UK job market showing signs of recovery and strength could increase bets that Bank of England (BoE) policymakers may be more likely to vote to raise interest rates, especially as some mentioned the effect of the furlough scheme ending as an important factor in decision making.

Slowing wage growth may also influence the next BoE decision, as although data indicated the smallest rise in five months in September at 5.8%, it was above forecasts of 5.6%, suggesting ongoing price pressures.

Australian Dollar (AUD) Dented by RBA Comments

The Australian Dollar (AUD) is struggling during today’s European session after RBA Governor Philip Lowe dismissed aggressive market pricing for an interest rate hike in 2022.

Lowe reiterated his view that inflationary pressure did ‘not warrant an increase in the cash rate in 2022’, saying:

“The economy and inflation would have to turn out very differently from our central scenario for the board to consider an increase in interest rates next year.”

However, the RBA has acknowledged that it could raise interest rates from the record 0.1% low before 2024 if global inflationary pressures take longer than expected to ease.

Hayden Dimes, an economist at ANZ, highlighted that Australia’s situation is different to countries, such as the US, where inflation is accelerating, commenting:

“Our view is that inflation here is unlikely to accelerate to anywhere near the levels seen in places like the U.S.

“Instead, we anticipate headline inflation remaining around current levels, whilst underlying inflation accelerates but stays within the RBA’s target band.”

Pound Australian Dollar Forecast: UK Inflation in Focus

The UK consumer price index data released tomorrow morning will be the focus for GBP investors.

With inflation expected to have accelerated to 3.9% in October from 3.1% in September, BoE policymakers may come under renewed pressure as to when they may raise interest rates.

After encouraging employment data today, investors will look for insight into the possibility of the BoE hiking rates at its December meeting, or whether the central bank will maintain its stance that inflationary pressure is temporary.

Meanwhile, in the absence of notable data releases, the risk-sensitive Australian Dollar will likely remain sensitive to risk appetite and investors betting on RBA rate hike speculation, despite Governor Lowe’s comments.

Andrew Roberts

Contact Andrew Roberts