The Pound Australian Dollar (GBP/AUD) exchange rate climbed through the week as a strong risk appetite buoyed the Australian Dollar (AUD) and Pound (GBP) sentiment was subdued by political headwinds.
GBP/AUD reversed its losses on Friday, however, as UK GDP grew by 7.5% through 2021.
What’s Been Happening: Pound faces Brexit Headwinds, ‘Aussie’ Strengthens on RBA Optimism
The Pound Australian Dollar exchange rate sank at the beginning of last week as the UK’s cost-of-living crisis dominated headlines. Meanwhile, the Australian Dollar found support on upbeat Chinese data.
Subsequently, tensions rose over the Northern Ireland protocol; AU business confidence buoyed AUD.
Midweek, the Australian Dollar climbed on expectations of a hawkish outlook from the Reserve Bank of Australia (RBA). Fresh political headwinds subdued Sterling as UK Prime Minister Boris Johnson smeared Labour Leader Sir Keir Starmer.
Towards the end of the week, the ‘Aussie’ came under pressure as high inflation in the US triggered a brief risk-off mood: on Friday, RBA Governor Philip Lowe struck a dovish tone, denting AUD.
Conversely, the Pound found support as UK GDP growth in 2021 was the fastest among the G7 countries: GBP/AUD recouped the majority of its losses from earlier in the week.
Three Things to Watch Out for This Week
- RBA Meeting Minutes
The RBA will publish the minutes of its latest meeting on Tuesday. If the minutes are dovish, AUD could come under pressure.
- UK Inflation
Annualised UK inflation is expected to remain unchanged in January. If this is the case, GBP may tumble on the reduced likelihood of aggressive monetary policy tightening.
- Employment Data
The UK will release unemployment data on Tuesday: higher average earnings could boost the Pound. Meanwhile, Australia anticipates a reduction in employment, potentially exerting AUD headwinds.
Pound Australian Dollar Forecast
The Pound Australian Dollar exchange rate is trending up today and may continue to do so if economists stick to their verdict that RBA rate hike expectations are ‘way overdone’.
Later in the week, rising UK retail sales might lend further support to GBP/AUD, although increasing AU services activity could help AUD secure some gains against its peers.