Pound Australian Dollar (GBP/AUD) Exchange Rate Muted
The Pound Australian Dollar (GBP/AUD) exchange rate is steady on Thursday as expectations for the Bank of England (BoE) to raise interest rates in March underpins Sterling support, despite UK growth worries.
Meanwhile the Australian Dollar has come under pressure as market mood again turns cautious over the prospect of a conflict in Ukraine to leave GBP/AUD trading just below AU$1.89.
Pound (GBP) Edges Higher Despite UK Growth Concerns
The Pound (GBP) is trading in a narrow range on Thursday morning as concerns over UK economic growth offset some of the support provided from expectations the BoE will raise interest rates again in March.
Following yesterday’s UK consumer price index data that revealed inflation hit a new 30-year high of 5.5% in January, markets appear to increasingly anticipate the BoE hiking interest rates at its next policy meeting.
However, soaring inflation is fuelling concerns over a mounting cost-of-living crisis in the UK.
In light of energy and fuel prices soaring, tax increases, and a household income squeeze, concerns persist over UK growth weakening, which are weighing on Sterling sentiment.
Recent research on UK exporters by the British Chamber of Commerce (BCC) published yesterday has added to worries over UK economic activity.
The survey found that the majority of the 1,000 businesses questioned said that the UK’s trade deal with the EU has created problems of increased costs, more paperwork and delays, and put them at a competitive disadvantage.
The BCC’s findings come after a report from a UK parliament cross-party public accounts committee (PAC) said businesses faced increased costs, supressed trade with the EU, and the only ‘detectable impact (of Brexit) so far is increased costs, paperwork and border delays.’
UK trade data also recently showed the dip of exports to the EU, with goods to the EU £20bn down last year compared to 2018, which was the last stable period of trade with Europe before the Trade and Co-operation Agreement (TCA).
Australian Dollar (AUD) Limited by Cautious Trade
Declining market risk appetite is limiting the risk-sensitive Australian Dollar (AUD) so far today after Australian jobs data and comments from Reserve Bank of Australia (RBA) policymakers provided AUD with modest support.
Comments from NATO Secretary-General Jens Stoltenberg that Russia has yet to de-escalate by moving forces away from the Ukraine border soured market sentiment again after an improvement yesterday.
However, the Australian unemployment rate remaining at 4.2% in January has provided the ‘Aussie’ with support.
Unemployment holding at a 13-year low will likely add pressure on the RBA to raise interest rates to bring down inflation caused by a tight job market.
With unemployment forecast to continue falling, increased wage growth could push inflation higher.
Comments from RBA Deputy Governor Guy Debelle supported the prospect of the central bank raising interest rates by saying that an interest rate rise in the next 12 months is possible but not inevitable.
Pound Australian Dollar Forecast: UK Retail Sales in Focus
The Pound Australian Dollar exchange rate may be able to make gains going into the weekend on the back of UK retail sales data for January.
Forecasts point to 1% growth last month after December’s sharp -3.7% contraction, potentially providing optimism that the UK economy may have weathered the cost-of-living squeeze and bolstered UK economic growth.
Meanwhile, developments in Ukraine and the prospect of a Russian invasion will continue to drive shifting market sentiment, potentially causing fluctuations in the Australian Dollar.