Pound Australian Dollar Exchange Rate Continues to Climb as AUD Trading Softens
(Updated 17:00, 11/02/2022) The Pound Australian Dollar (GBP/AUD) exchange rate continued to trend up this afternoon despite economists’ measured approach following the release of the UK’s GDP data.
Investors are keen to celebrate the growth of the UK’s economy amidst so many headwinds stemming from political turbulence; also buoying GBP/AUD is continuing downside in the ‘Aussie’ given the Reserve Bank of Australia (RBA)’s relatively dovish stance yesterday.
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GBP/AUD Exchange Rate Firms as UK GDP Climbs in 2021
The Pound Australian Dollar (GBP/AUD) exchange rate has risen this morning following the publication of UK GDP data. Britain’s economy expanded by 7.5% in 2021, the fastest economic growth seen among the G7 countries.
At the time of writing, GBP/AUD is trading at A$1.9022, up 0.5% from today’s opening levels.
Pound (GBP) Gains against Peers on Upbeat GDP
The Pound (GBP) is trading up against a basket of other currencies today given positive GDP data, which revealed the UK’s strongest economic growth since the 1940s.
UK GDP grew by 7.5% over the course of 2021 – the fastest growth among any of the G7 countries. However, economists are quick to point out that the growth comes from a low base in 2020 when Britain’s economy fell sharply.
UK GDP declined by 9.4% in 2020, so that despite last year’s increase, real GDP remains below its pre-pandemic level. The UK is now ‘the middle of the pack’, as the US, Canada and France boast larger economies.
Furthermore, MPs and economists warn that economic pressures are likely to increase ahead. Sebastian Mackay, Invesco multi-asset fund manager, says:
‘UK households face a triple whammy of higher energy prices, an increase in the rate on National Insurance contributions and higher interest rates… These domestic headwinds, combined with a backdrop of decelerating global growth indicate a more challenging outlook for the UK economy.’
Pat McFadden MP, Labour’s Shadow Chief Secretary to the Treasury, reiterates that ‘with [the government’s] current plans our position is not expected to improve. The latest Bank of England forecast suggests that growth will slow to a crawl next year.’
Others are more optimistic, however. Chancellor of the Exchequer, Rishi Sunak, says the UK economy has been ‘remarkably resilient’. Sunak remarked that he’s ‘proud of the resolve the whole country has demonstrated’, and ‘proud of the vaccine programme’, which allowed the economy to stay open.
Australian Dollar (AUD) Sinks on Comparatively Dovish RBA
The Australian Dollar (AUD) is sliding against the majority of its peers as a lack of significant data exposes the currency to losses.
The ‘Aussie’ is trading instead on downbeat expectations for the Reserve Bank of Australia (RBA), given the central bank’s dovish tone in comparison with, for example, the European Central Bank (ECB).
Known for its usually-dovish rhetoric, the ECB has struck a more hawkish tone recently: Vice President Luis de Guindos remarked yesterday that if second-round effects raise inflation further, ‘monetary policy will have to respond’, while President Christine Lagarde refused to rule out a rate hike in the bank’s first policy review of the year.
Meanwhile, RBA Governor Philip Lowe explained overnight that the bank will wait until seeing evidence that inflation has picked up in a sustainable way, before taking action.
According to Westpac analysts, AUD softness may persist into March, recovering only in the second quarter.
Pound Australian Dollar Exchange Rate Forecast: External Factors to Drive Movement?
Looking ahead, a lack of data on either side leaves the Pound Australian Dollar to trade on external factors into next week’s session.
AUD traders may hesitate to place bullish bets ahead of Tuesday’s RBA minutes, while the Pound may be supported by expectations of an improved employment outlook.
Overall, GBP/AUD is likely to trade on risk sentiment, with ongoing political factors exerting potential Sterling headwinds.