Pound Australian Dollar Exchange Rate Undermined by UK Cost of Living Fears
The Pound Australian Dollar (GBP/AUD) exchange rate remains struck at a four-year low this morning as the UK’s national insurance rise placed renewed focus on the cost of living crisis.
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.7266, virtually unchanged from today’s opening rate.
Pound (GBP) Muted as NI Rise Places More Pressure on UK Households
The Pound (GBP) is struggling to attract support this morning as the UK’s controversial rise in National Insurance puts the cost of living crisis back in the spotlight.
From today NI will rise by 1.25% as part of the government’s plans to provide additional funding for the NHS and social care.
However, the rise comes at a time when UK households are already feeling the squeeze from surging inflation, rising fuels costs and an increase in the energy price cap.
GBP investors fear the cost of living crisis will suppress consumer spending in the coming months and weaken economic growth.
The Office for Budget Responsibility (OBR) recently slashed its growth forecast for 2022 to 3.8% down from its previous forecast for a 6% expansion.
Meanwhile, the Pound’s upside potential is also being capped by renewed concerns over the war in Ukraine, as observers are growing increasingly doubtful that a negotiated end to the conflict could be found in the near-term.
This comes as Ukraine is reportedly investigating over 4,500 alleged war crimes perpetrated by Russian forces, with the West planning to impose more sanctions on Russia in response.
GBP investors fear the longer the conflict drags on the more it will exacerbate the UK’s cost of living crisis by stoking global inflationary pressures.
Australian Dollar (AUD) Subdued as Chinese PMIs Disappoint
At the same time, after roaring higher on Tuesday in response to some surprisingly hawkish forward guidance from the Reserve Bank of Australia (RBA), the Australian Dollar (AUD) is struggling to extend its upside momentum in light of some worrying PMI figures from China.
The latest Caixin PMI reported China’s services sector contracted in March, shrinking at its fastest pace since February 2020, when the country’s first Covid lockdowns were introduced.
The data highlights how Beijing’s zero-Covid policy is impacting China’s economy, with AUD investors fearing the knock-on impact this could have on demand for Australian exports.
Pound Australian Dollar Forecast: Robust Australian Trade Figures to Boost the ‘Aussie’?
Looking ahead to the second half of the week, the Pound Australian Dollar (GBP/AUD) exchange rate could be pressured by the release of Australia’s latest trade figures.
Economists forecast Australia’s trade surplus will have remained above AU$12bn in February as commodity prices surged.
Meanwhile, a speech by Bank of England (BoE) policymaker Huw Pill may provide fresh impetus of movement for the Pound tomorrow.
If Pill touches on the BoE’s monetary policy and echoes his colleagues’ dovish outlook regarding future interest rate hikes then Sterling is likely to weaken.