Pound Australian Dollar (GBP/AUD) Exchange Rate Drops Post US Inflation

GBP/AUD Sinks as USD Downside Elevates Risk-On Peers

(Updated 17:00, 12/01/2022) The Pound Australian Dollar (GBP/AUD) exchange rate dipped sharply this afternoon as bearish US Dollar trading lent support to the ‘Greenback’s perceived riskier rivals. The Australian Dollar (AUD) climbed on the subsequent risk-on mood, brushing off headwinds over Covid case numbers and Chinese inflation.

Meanwhile, the Pound (GBP) continues to come under pressure given a lack of significant UK data. Political tensions show little sign of abating as one newspaper suggests that the ‘Partygate’ scandal in which UK PM Boris Johnson is embroiled is a scapegoat being used to punish Johnson for his messy handling of Brexit.

Adding to downside pressure, some analysts are warning that UK inflation could reach the levels reported today in America. Kevin Brown, savings specialist at ScottishFriendly, says:

‘Prices started spiking in the US in April and at the time the Fed hoped that rising inflation would be temporary, but it has become clear that intervention is needed… A very similar picture is emerging in the UK and all eyes will now be on the latest ONS inflation data for December to see whether the emerging cost of living crisis can be brought under control..’

Original article continues below:

Pound Australian Dollar Exchange Rate Wavers on Data Scarcity

The Pound Australian Dollar (GBP/AUD) exchange rate is directionless this morning given a lack of data from both Australia and the UK. Meanwhile, risk appetite appears to recover slightly.

At the time of writing, GBP/AUD is trading at A$1.8897, virtually unchanged from today’s opening levels.

Pound (GBP) Faces Pressure as Political Tensions Escalate

The Pound is subdued against several of its peers this morning as Brexit concerns and domestic political tensions weigh upon Sterling sentiment.

On the Brexit front, threats from new appointed negotiator Liz Truss to invoke Article 16 are met with wariness, as various news sources suggest Truss may have her own reasons for coming down hard on the EU: as a possible contender for the Conservative leadership, it may be that she hopes to garner support with a hard-line approach.

Also applying downside are further investigations into the UK Prime Minister’s breach of Covid rules. Allegations that Boris Johnson held an illicit garden party during the early days of the Covid-19 pandemic have lost him support amongst his party MPs.

High UK Covid cases continue to cap GBP gains, as new data from the UK Health Security Agency (UKHSA) reveals that one in seven people who’ve tested positive for Covid could still be infectious if released from isolation after five days with a negative lateral flow test.

Prof Lawrence Young, a virologist from the University of Warwick, said:

‘As the UKHSA data attests, reducing the isolation period to five days runs the risk of highly infectious people returning to work or school.’

Australian Dollar (AUD) Fluctuates on Lack of Data

The Australian Dollar (AUD) is tumbling against several peers this morning as a lack of significant data exposes the currency to headwinds. Also exerting downside is an escalating number of Covid cases.

Chinese data published during the early Asian session revealed that China’s inflation rate exceeded expectations of a fall to 1.8%, sliding instead to 1.5%. In contrast to other central banks, this has prompted suggestions of an interest rate cut: the news has done little the buoy the ‘Aussie’ in its role as a proxy for China’s economy.

Meanwhile, Covid cases in New South Wales (NSW) are ‘set to explode’ after more than 50,000 positive rapid antigen tests were registered within six hours of the government’s new app launching. The Service NSW app has been designed to make reporting easier for the public.

More than half of the cases registered on Wednesday were backdated – Customer Services Minister, Victor Dominello remarked that:

‘It is a big number [but] as you’d expect… Covid is not just here in NSW, it’s in Queensland, it’s in Victoria, it’s in South Australia and all throughout Europe. It’s a pandemic.’

Given uncertainty about the reliability of reporting techniques, the government has announced that from 19 January, people who do not register a positive result face a $1,000 fine.

GBP/AUD Exchange Rate Forecast: External Factors to Inspire Movement ahead of UK GDP?

Looking ahead, both currencies face a quiet Thursday ahead of Friday’s clutch of UK data. GBP/AUD is consequently likely to trade on external factors, including Brexit developments and Covid infection numbers.

If tensions continue to escalate over Boris Johnson’s potential flouting of Covid restrictions, Sterling could face additional downside, subduing the Pound Australian Dollar exchange rate.

Olivia Evershed

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