Pound Australian Dollar (GBP/AUD) Softens amid UK Economic Concerns
(Updated 16:30, 9/2/22) The Pound Australian Dollar (GBP/AUD) exchange rate has fallen to a two-week low today amid concerns about the UK economy.
A report by the cross-party public accounts committee (PAC) has argued that Brexit has ‘suppressed’ UK trade with the EU. It also warns that the situation could worsen later in the year when the EU implements stricter border controls.
Meg Hillier, the PAC chair, said:
‘One of the great promises of Brexit was freeing British businesses to give them the headroom to maximise their productivity and contribution to the economy – even more desperately needed now on the long road to recovery from the pandemic. Yet the only detectable impact so far is increased costs, paperwork and border delays.’
The report comes as other economic concerns weigh on the Pound (GBP). The UK is facing a cost-of-living squeeze, with rising taxes, higher inflation and a 54% increase in the energy price cap.
The National Institute of Economic and Social Research (NIESR) has warned that the planned hike in National Insurance could push one million more households into destitution, which it defines as an inability to buy basic essentials.
The thinktank has urged the government to scrap the planned tax hike to prevent a 30% rise in destitute households.
Additionally, a recent poll by YouGov and economic consultancy Cebr shows that the cost-of-living crunch is weighing on consumer confidence. Their consumer confidence index fell to an eight-year low last month. Survey respondents cited rising prices, tax increases and job insecurity for their gloomy outlook.
At the end of the European session, GBP/AUD was trading at AU$1.8866, 0.37% below its opening level.
Original article continues below:
Pound Australian Dollar (GBP/AUD) Exchange Rate Wobbles as AUD Rally Wanes
The Pound Australian Dollar (GBP/AUD) exchange rate is wavering this morning, as the Australian Dollar’s (AUD) two-day rally starts to fade.
However, the Pound (GBP) seems unable to press the advantage as the UK’s political turbulence continues to rattle GBP investors.
Australian Dollar (AUD) Holds Gains amid RBA Rate Hike Bets
The Australian Dollar edged higher in overnight trade as global markets priced in more aggressive tightening from central banks. This buoyed local bond yields to three-year highs.
Following last week’s more hawkish positions from both the Bank of England (BoE) and the European Central Bank (ECB), as well as stronger-than-expected US jobs data, investors are gearing up for other central banks to tighten policy.
Expectations of a rate rise from the Reserve Bank of Australia (RBA) saw the Australian government ten-year bond yield hit its highest level since March 2019 last night. Although it eased lower in the Asian trading hours, it remains elevated.
At its last policy decision, the RBA chose to end quantitative easing but RBA Governor Philip Lowe sought to rein in rate hike bets.
Still, with other central banks looking to accelerate their tightening cycles, markets now expect stronger action from the RBA. Traders see the Australian central bank hiking its cash rate from 0.1% to 0.25% by June.
This saw the ‘Aussie’ gain against the Pound overnight. However, a larger-than-expected drop in consumer confidence limited the upside. The GBP/AUD pair then began wavering as the European session opened.
Pound (GBP) Muted as Political Turmoil Continues
Turning to the Pound, Sterling seems fairly flat so far this morning with UK data thin on the ground.
Britain’s economic calendar has been quiet all week, with a handful of second-tier data releases causing limited movement. Today GBP remains subdued.
The lack of data is leaving GBP particularly vulnerable to the ongoing political turmoil in the UK. Boris Johnson seems determined to push ahead and stay in power, despite the appearance that his premiership is hanging by a thread.
With the police investigation into ‘partygate’ still hanging over his head, Johnson faces fresh criticism for his Jimmy Savile smear of the Labour leader, Sir Keir Starmer. Demonstrators accosted Starmer on Monday afternoon, shouting accusations related to the untrue conspiracy theory that he protected Savile when he was the head of the CPS.
In the latest development, a billionaire Tory donor has suggested that Johnson should resign.
John Armitage, who has donated £3.1m to the Conservatives, including £500,000 since Johnson became Prime Minister, said that he believes the PM is ‘past the point of no return’.
GBP/AUD Exchange Rate Forecast: More UK Political Trouble Ahead?
Looking ahead, the UK’s political situation could continue to weigh on GBP/AUD today. Any new developments that further undermine Boris Johnson’s position could bring the Prime Minister closer to a no-confidence vote. Such uncertainty would be bad for the Pound.
Meanwhile, risk appetite could play a part in the currency pair. If market sentiment sours, perhaps due to the ongoing Ukraine crisis, this could weigh on the risk-sensitive ‘Aussie’.
GBP investors may be looking to a speech from BoE Chief Economist Huw Pill this afternoon for fresh impetus. Any hawkish comments could provide Sterling with a boost.