Pound Australian Dollar (GBP/AUD) Exchange Rate Rangebound after UK Grocery Inflation Hits 13-Year High

(Updated 21/06/22 16:35)

The Pound Australian Dollar (GBP/AUD) exchange rate is trading within a narrow range today. A downturn in UK manufacturing growth likely caused the currency pair to shed the majority of its earlier gains. Manufacturing business continued to report a range of issues including rising costs, supply chain issues, and recruitment difficulties.

GBP/AUD may have also struggled amid widespread disruption to the UK’s rail network. Representatives for the UK’s hospitality sector claimed that businesses could see around £500M worth of losses.

At time of writing the GBP/AUD exchange rate is at around $1.7561, which is virtually unchanged from this morning’s opening figures.

Original article continues below:

Pound Australian Dollar (GBP/AUD) Exchange Rate Boosted by Rate Hike Bets

The Pound Australian Dollar (GBP/AUD) is making steady gains this morning. The currency pair is likely being pushed higher by expectations of further Bank of England (BoE) interest rate hikes. The increased bets come after figures this morning showed that UK food inflation has hit a 13-year high.

The exchange rates climb could be capped by the publication of surprisingly hawkish minutes from the Reserve Bank of Australia (RBA) today. Additionally, Brexit-related concerns over the Northern Ireland Protocol could also limit gains for GBP/AUD.

At time of writing, the GBP/AUD exchange rate is around $1.7622, which is up around 0.3% from this morning’s opening figures.

Pound (GBP) Ticks Upward as Grocery Inflation Increases Bets on BoE Rate Hikes

The Pound (GBP) is edging higher today amid expectations of additional rate hikes from the BoE. A further rise to grocery price inflation today has helped to increase bets on Sterling.

Grocery price inflation was shown to have risen to 8.3% over the four weeks up to June 12. This represents its highest level since April 2009 as the country’s cost-of-living crisis continues to dampen household spending.

Hawkish comments from multiple BoE officials in recent days may also be keeping GBP buoyed today. The central bank’s chief economist Huw Pill reinforced this stance in a speech today.

Pill said:

‘We will do what we need to do to get inflation back to target. And at least in my view, that will require further tightening of monetary policy over the coming months.’

On the other hand, concerns over Brexit-related tensions over the Northern Ireland Protocol today could cap gains for Sterling today. Additionally, the beginning of a widespread strike in the UK’s rail sector could pull GBP lower over fears of the action’s economic impact.

Australian Dollar (AUD) Falls Despite Hawkish RBA Minutes

The Australian Dollar (AUD) is dropping lower today despite the release of hawkish RBA minutes earlier today.

The RBA minutes signalled a significant amount of policy tightening ahead and may help to underpin the ‘Aussie’. Investors limited their bets on the currency after speeches from Governor Phillip Lowe, however.

Lowe stated that 0.75% rate hikes were not ‘particularly likely’, but that the central bank would be hiking rates by either 25 or 50 basis point at its next meeting.

A drastic slump to iron ore prices may also be pulling AUD lower today. Iron ore prices have fallen by around 8% today amid falling profit margins at Chinese steel mills.

GBP/AUD Exchange Rate Forecast: Will UK Inflation Rise Prompt BoE to Act?

Looking ahead to the rest of the week for the Pound, a predicted downturn to factory orders later today could pull the Pound lower.

Investors will be most keenly focused on Wednesday’s inflation figures, however. If the rate rises as forecast, then it could see Sterling off the back on increased bets on rate hikes from the BoE.

On the other hand, Thursday’s fall to private sector growth could prevent GBP from climbing too high if PMI figures decline as predicted. Additionally, a potential fall to May’s retails sales on Friday could also see the currency lose ground.

For the Australian Dollar, Thursday’s PMI figures could dent confidence in the currency if they indicate a slowdown in the country’s economic recovery. A speech from RBA Governor Phillip Lowe on Friday could prompt movement in AUD depending on his forward outlook.

Gareth Monk

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