Pound Australian Dollar (GBP/AUD) Exchange Rate Jumps Despite Poor UK GDP Figures

(Updated 16:30 12/05/22)

The Pound Australian Dollar (GBP/AUD) exchange rate continued to make gains today. A largely risk-on trading sentiment continued to support the currency pair’s ascent. A strong US Dollar (USD) kept the Australian Dollar (AUD) on the backfoot after US PPI figures increased bets on further rate hikes from the Federal Reserve.

At time of writing the GBP/AUD exchange rate is at around $1.7800, which is up around 0.8% from this morning’s opening figures.

Pound Australian Dollar (GBP/AUD) Exchange Rate Gains amid USD Rally

The Pound Australian Dollar (GBP/AUD) is climbing today despite an above-forecast fall to UK GDP. The currency pair is benefitting from weakness in the risk-sensitive Australian Dollar (AUD) amid fears of a global recession. A renewed rally in the US Dollar (USD) is also likely helping the GBP/AUD pair to climb higher despite worrying UK data.

At time of writing the GBP/AUD exchange rate is at around $1.7720, which is up roughly 0.3% from this morning’s opening figures.

Pound (GBP) Stumbles as UK Economy Contracts in March

The Pound (GBP) is struggling against many of its rivals today, with gains elsewhere remaining limited. The currency is suffering after UK GDP figures for March printed a greater than expected fall this morning.

The figures showed that the UK’s economy contracted in March amid a significant cutback in consumer spending. The country’s ongoing cost-of-living crisis hit big-ticket purchases as well as spending on petrol. Many households have been restricting journeys due to the high cost of fuel.

Rain Newton-Smith, chief economist for the Confederation of British Industry (CBI), said:

‘The economy barely kept its head above the water during a volatile start to the year, but times look set to get that bit tougher. Cost pressures and rising prices have tightened their grip, with both businesses and households feeling the pinch. The end result is a weaker economic outlook.’

The figures have heaped more pressure on the UK government to provide additional support for struggling households. Analysts have highlighted the growing risk of an early recession for the country should the government not intervene. Business heads, including those at John Lewis and Tesco, have also called for ‘decisive action’.

Concerns that the UK could be heading toward a trade war with the EU may also be keeping Sterling suppressed today. A bill is expected to be put before MPs next week that will propose to scrap elements of the Northern Ireland Protocol.

Such legislation is expected to face significant opposition, however. UK Foreign Secretary Liz Truss has been warned of a significant rebellion over the plans, with reports indicating that a number of ministers were prepared to resign rather than pass any potential bill into law.

Australian Dollar (AUD) Slips amid Risk-Off Market Mood

The Australian Dollar (AUD) is sliding lower against its competitors today. A renewed rally in the US Dollar (USD) may be contributing to currency’s fall. Additionally, risk-off trading and poor commodity prices may also be weighing on the ‘Aussie’.

Ongoing Covid-19 lockdowns in China have continued to fuel fears of a widespread global slowdown. Authorities in Shanghai are reported to be ‘hunting down’ outlying Covid-19 cases to try and bring an end to the city’s six-week lockdown. The country has continued to pursue an aggressive ‘zero-Covid’ policy.

Fears of further aggressive rate hikes from the Reserve Bank of Australia (RBA) may also be denting confidence in AUD.

GBP/AUD Exchange Rate Forecast: Will RBA Signal Further Rate Hikes

With no significant data left for the Pound (GBP) this week, the currency may continue to face headwinds in the form of the UK’s poor economic outlook. Sterling could see a boost should the government announce measures to tackle the country’s cost-of-living crisis. On the other hand, fears over its approach to the NI Protocol could limit any significant gains.

For the Australian Dollar (AUD), a speech from RBA Deputy Governor Michele Bullock could cause movement in the ‘Aussie’ on Friday. Investors will be watching for signals for any further rate hikes from the central bank.

Gareth Monk

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