GBP/AUD Exchange Rate Dips as an Upbeat Market Mood Boosts the ‘Aussie’
(Updated 17:00, 19/01/2022) The Pound Australian Dollar (GBP/AUD) exchange rate has fallen this afternoon despite an overall uptrend in Pound exchange rates. GBP enjoyed tailwinds as Bank of England (BoE) Governor Andrew Bailey reassured investors that the central bank ‘can and will do everything [it] can to control inflation.’
While encouraging however, some economists are reluctant to take Bailey’s comments to heart given his reputation as an ‘unreliable boyfriend’. The BoE Governor signalled a rate hike previously, only to keep interest on hold as policymakers voted with a dovish bias.
Regardless, AUD gains have lifted the ‘Aussie’ against Sterling and the majority of its peers, as risk sentiment remains favourable and markets anticipate an upbeat employment report tomorrow.
Original article continues below:
Pound Australian Dollar Exchange Rate Trades Sideways as UK CPI Exceeds Expectations
The Pound Australian Dollar (GBP/AUD) exchange rate is range-bound this morning as UK inflation hit 5.4% for the year to December 2021. Meanwhile, the Australian Dollar (AUD) is tentatively higher despite a lack of significant data.
At the time of writing, GBP/AUD is trading at A$1.8914, virtually unchanged from today’s opening levels.
Pound (GBP) Slides despite High Inflation Reading
The Pound (GBP) is sinking against several of its peers this morning in spite of a high UK inflation reading. As the Bank of England (BoE) is already expected to hike interest rates at its February meeting, Sterling receives limited support from the prospect of central bank action.
December’s CPI release exceeded consensus forecasts of a rise to 5.2%, coming in 0.2% higher. This is the highest inflation has been since 1992, as rising energy prices, supply chain disruptions and last year’s low base effect all contribute towards increasing price pressures.
Economists and public figures are increasingly worried that the cost of living is becoming unmanageable for a growing number of UK households: according to Kitty Ussher, chief economist at the Institute of Directors:
‘What is of particular concern is that the change from November has come mainly from an increase in the price of food.
Not only does this provide additional evidence that inflation is becoming endemic rather than transitory, it also bodes ill for households facing multiple rises in the cost of living this spring.’
Also of concern to GBP investors, the fact that real wage growth is lagging behind the pace of inflation has led some analysts to consider that the BoE may ease off aggressive monetary policy tightening.
ING markets economist James Smith confirms that ‘we think wage growth will assume higher priority in deciding how far to increase Bank rate this year.’
Australian Dollar (AUD) Inches Higher on USD Weakness
The Australian Dollar (AUD) is trading up against several peers today as an improving market mood supports the risk-on currency.
A rally in the US Treasury bond yields initially left AUD investors wary, while aggressive rate hike expectations for the Federal Reserve puts pressure on other central banks to follow suit. However, as USD comes under pressure, the Australian Dollar attempts to rebound.
Nevertheless, last night’s consumer confidence data caps ‘Aussie’ gains. The Westpac index revealed a greater-than-expected decline, as confidence posted significant falls in Queensland (–2.7%), Western Australia (–5.1%) and South Australia (–3.9%); NSW registered a record daily surge in Covid infections on Tuesday.
GBP/AUD Exchange Rate Forecast: AU Employment Data to Influence Trading?
Looking ahead, the Pound Australian Dollar exchange rate may be influenced tomorrow by Australia’s December employment data. Unemployment is expected to have reduced, with the number of people in employment is forecast to increase by 43.3K.
If the data prints as expected, the ‘Aussie’ may enjoy tailwinds.
In the meantime, GBP exchange rates could be affected by a speech this afternoon from BoE Governor Andrew Bailey. If Bailey strikes a dovish tone, Sterling may come under pressure.