Pound Australian Dollar (GBP/AUD) Exchange Rate Extends Downslide Following US CPI Release

GBP/AUD Continues Sinking on UK External Headwinds

(Updated 17:00, 10/08/2022) GBP/AUD continued to fall at the close of the European session, as Pound headwinds dented Sterling against its peers.

Soaring energy prices were discussed in the news on Wednesday, considering the effect of the rapidly-rising energy price cap on UK household finances. According to the Guardian, chancellor Nadhim Zahawi and business secretary Kwasi Kwarteng will meet energy company executives tomorrow to discuss a crackdown on rising living costs.

The UK government is said to be considering an increase in the windfall tax, which will limit the profits energy companies are currently making. There have been calls to do so since it was revealed that oil giants such as British Petroleum were making unprecedented profits in the range of £50bn per quarter, as some UK families are having to decide between food and electricity.

Despite proposed government action, energy prices continue to weigh upon the Pound as further price rises are predicted.

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Pound Australian Dollar Drops As US Inflation Rate Falls

(Updated 16:00, 10/08/2022) The Pound Australian Dollar (GBP/AUD) exchange rate fell to a 19-day low this afternoon as weaker-than expected US inflation data improved market sentiment, buoying the risk-off Australian Dollar.

AUD climbed against the majority of its peers, excepting the New Zealand Dollar, following the turnaround in risk appetite. Weakening price pressures in the world’s largest economy suggest inflation may be on the brink of easing from record highs elsewhere, calming fears of a recession.

Analysts also attribute some of the ‘Aussie’s’ returning strength to technical buying. Looking ahead, AUD is expected to trend up further; although ongoing geopolitical tensions may cap gains for risk-sensitive currencies.

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GBP/AUD Exchange Rate Wavers on Lack of Domestic Data

The Pound Australian Dollar (GBP/AUD) exchange rate is trading in a narrow range today, following the release of below-forecast inflation data from China. Meanwhile, cost-of-living pressures continue to weigh upon the Pound (GBP).

At the time of writing, GBP/AUD is trading at $A1.7347, virtually unchanged from today’s opening levels.

Australian Dollar (AUD) Clings to Tailwinds despite Chinese CPI

The Australian Dollar (AUD) is trending slightly higher against its peers today, in spite of downbeat inflation data from China.

The Chinese consumer price index printed at 2.7% in July rather than 2.9% as expected – and still 0.3% away from the People’s Bank of China (PBoC)’s target of 3%. Nevertheless, this was the fastest rise in consumer prices since 2020.

Consequently, AUD resisted significant headwinds and continued to make small gains on yesterday’s upbeat data releases. NAB business confidence data for July printed at 7 rather than 2 as forecast.

Capping ‘Aussie’ gains today may be a weaker market mood and comments from China that it is not at a stage to discuss political or trade issues with Australia.

The former reflects bearish sentiment ahead of America’s CPI release – US stock index futures are trading in negative territory while the benchmark 10-year US Treasury bond yield holds steady.

Regarding political tensions with China, the world superpower has said of its political imprisonment of an Australian citizen in China:

‘Currently, there have been top-level communications, high-level contacts even face-to-face contacts, but we have not yet come to the stage to discuss how to solve those specific issues.’

The conflict between China and Australia echoes tensions between China and the US on account of US House of Representatives speaker Nancy Pelosi’s recent visit to Taiwan.

Pound (GBP) Trends Broadly Higher Amid Stark Warnings to Government

The Pound is rising against its peers for the most part, despite downbeat comments from various campaigners and analysts which suggest UK cost pressures are only going to get worse.

Martin Lewis, the consumer champion, remarks that ‘it is government and government alone that can make the decision to stop the terrible cataclysmic risk millions of people in our nation face this winter.’

While favoured prime ministerial candidate Liz Truss has pledged tax cuts, Lewis says:

‘Tax cuts are not going to help the poorest pensioners; it’s not going to help those on universal credit. The dropping the green levy is a sticking plaster on a gaping wound.’

Illustrating the extent of the crisis, experts at Uswitch have calculated that UK households owe £1.3bn to their energy providers – before bills are set to rise again by more than 80%.

According to the price comparison service, 6 million homes across the UK owe an average of £206 to their energy provider, up from £188 in April. Analysts add that the overall debt bill is already three times higher than a year ago.

Pound Australian Dollar Exchange Rate Forecast: US Inflation to Rock Currency Markets?

Looking ahead, today’s US CPI release is the main event in currency markets and will likely influence risk sentiment and overall trading dynamics.

If inflation in the world’s largest economy exceeds the 8.7% forecast, the ‘Greenback’ will likely enjoy tailwinds. Such a result may subdue USD’s European counterpart and potentially heighten risk aversion as markets respond to surging price pressures.

However, if America’s CPI fell in the year to July then the US Dollar could weaken and market mood may improve on signs of slowing inflation.

Olivia Evershed

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