Pound Australian Dollar (GBP/AUD) Exchange Rate Firms as Inflation Misses Forecasts

GBP/AUD Exchange Rate Extends Uptrend as AUD Sentiment is Subdued

(Updated 16:20, 27/07/2022) The Pound Australian Dollar exchange rate is extending its upward trend this afternoon as the fact of weaker-than-expected AU inflation continues to weigh upon the ‘Aussie’. Meanwhile, Sterling is supported by bullish rhetoric regarding the Bank of England (BoE)’s interest rate decision next week.

According to a Reuters poll of economists, the central bank is most likely to hike interest rates by 25bps given the fine line policymakers must tread to tame inflation while avoiding a recession. However, the decision is set to be a very close call – news which buoys GBP sentiment as it indicates hawkish sentiment within the BoE’s monetary policy committee (MPC).

Cost-of-living concerns, on the other hand, continue to cap Sterling gains: home energy bills in the UK could soar to £3,850 from January according to management consultancy BFY. This follows Russia’s move to cut energy exports to Europe today.

Original article continues below:

Pound Australian Dollar Exchange Rate Rises on Weaker-Than-Expected AU CPI

The Pound Australian Dollar (GBP/AUD) exchange rate is trending up this morning as the Australian Dollar (AUD) sinks on worse-than-expected inflation data. Meanwhile, consumer prices continue to surge in the UK as retail giant Reckitt Benckiser hikes prices by 9.7%.

At the time of writing, GBP/AUD is trading at A$1.7370, up approximately 0.3% from today’s opening levels.

Australian Dollar (AUD) Drops Following Inflation Release

The Australian Dollar is weakening against its peers this morning after consumer price inflation for Q2 2022 printed at 6.1% rather than the 6.2% expected.

Inflation peaked to the highest print since Q2 in 2001 amid an acceleration of food price hikes and an increase in the cost of both fuel and accommodation.

Meanwhile the Reserve Bank of Australia (RBA)’s trimmed mean inflation reading rose 4.9% on an annualised basis – the fastest pace since the series began in 2003.

Nevertheless, the outlook for AUD remained fairly downbeat, as interest rates may have to more than double in order to control rising price pressures. Markets expect the RBA will hike rates by at least 50bps on 2 August at its next meeting.

Indeed, the central bank’s Governor Philip Lowe has indicated that rates will likely continue to rise towards a ‘neutral’ level of at least 2.5%, although markets have priced in as much as 3.75%.

Today’s release comes a day before Treasurer Jim Chalmers addresses the previous government’s budget forecasts. Chalmers is already warning that inflation is likely to worsen before easing:

‘It will be confronting,’ he told reporters of the update; ‘Inflation revised up substantially, growth revised down, and all of the implications that brings.’

Pound (GBP) Firms as Retail Giant Hikes Prices by Almost 10%

The Pound (GBP) is trading higher against its peers this morning despite a lack of significant data and moderate risk aversion.

Buoying Sterling may be positive growth figures from one of the UK’s major consumer brands. As the economy struggles to recover from a series of blows, upbeat retail data is encouraging – although the Trades Union Congress (TUC) has commented that companies ought to rein in their profits at a time when workers are facing a reduction in real pay.

Reckitt Benckiser has swelled its revenues by raising prices across essential household products such as bleach and disinfectant. The strategy is successful as Matt Britzman at Hargreaves Landsdown observes, ‘cleaning and hygiene products are hardly going to be the first things left off shopping lists when wallets are stretched.’

Nevertheless, Helen Dickinson OBE, chief executive of the British Retail Consortium, stresses that the brand’s profits are coming at the cost of the consumer:

‘July saw the highest rate of shop price inflation since our index began in 2005, as heightened cost pressures continued to filter through to customers. Rising production costs – from the price of animal feed and fertiliser to availability of produce, exacerbated by the war in Ukraine – coupled with exorbitant land transport costs, led food prices to rocket to 7 per cent.’

Eye-wateringly high inflation pressures will be in focus over the coming few days ahead of the Bank of England (BoE)’s rate decision next week, as BoE policymakers must act in the best interests of British households and businesses.

Pound Australian Dollar Exchange Rate Forecast: AU Sales Forecast to Support the ‘Aussie’?

Looking ahead, a lack of further data this afternoon leaves the Pound Australian Dollar exchange rate to trade on external factors. As investors continue to digest this morning’s inflation data, GBP/AUD may fluctuate.

Into tomorrow’s session, the ‘Aussie’ might enjoy tailwinds on country-wide retail data. June’s preliminary reading is expected to show that sales rose in Australia by 0.5% last month – less than in May, but still an improvement upon the performance of other countries. UK sales fell by 0.1% in June.

Olivia Evershed

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