Pound Australian Dollar (GBP/AUD) Exchange Rate Falls after UK GDP Slump

Pound Australian Dollar (GBP/AUD) Exchange Rate Slips as UK Trade Deficit Widens

(Updated 16:40 12/08/22)

The Pound Australian Dollar (GBP/AUD) exchange rate continued to fall today. The currency pair likely saw continued losses amid a largely risk-on market mood.

Poor data releases for the UK earlier in the day may have also kept pressure on GBP/AUD. As well as the fall to GDP, the UK’s trade deficit widened significantly in June, bringing it closer to its lowest point since 1955.

A sustained uptick in iron ore prices may have also pulled the exchange rate lower today.

At time of writing the GBP/AUD exchage rate was at around $1.7604, which is down roughly 0.6% from this morning’s opening figures.

Original article continues below:

Pound Australian Dollar (GBP/AUD) Exchange Rate Drops amid Risk-On Mood

The Pound Australian Dollar (GBP/AUD) exchange rate is falling today after figures indicated a contraction in the UK economy. A risk-on market mood may also be weighing on the currency pair.

At time of writing the GBP/AUD exchange rate is at around $1.7102, which is down roughly 0.4% from this morning’s opening figures.

Pound (GBP) Slumps as Growth Stumbles in Second Quarter

The Pound (GBP) is falling against its peers today. GDP figures this morning indicated a contraction in the UK economy last month. GDP in June fell by 0.6% versus May’s increase of 0.4%. A risk-on market mood may also be denting confidence in the Pound today.

The GDP fall was not as drastic as had been forecast, however. Economists had expected the Queen’s Jubilee celebrations to have exerted a greater drag on the economy.

The figures were still met with a downbeat analysis, however. Many economists predicted that the data gave extra weight to last week’s predictions of a 2022 recession from the Bank of England (BoE).

The National Institute of Economic and Social Research was definitive in its analysis, as it stated:

‘It now looks like the UK economy entered a recession in the second quarter of this year as GDP fell by 0.1%, and we expect output to continue falling over the next three quarters.’

Hussain Mehdi, a macro and investment strategist at HSBC Asset Management, supported this analysis:

‘UK growth is stagnating as the economy faces challenges from a severe real income squeeze amid elevated inflation and higher interest rates. In this backdrop, it will be difficult to dodge recession, especially with upside risks to energy prices heading into the winter.’

Australian Dollar (AUD) Bolstered by Strong Commodity Prices

The Australian Dollar (AUD) is climbing higher amid a risk-on market mood today. A generally softer tone around the US Dollar (USD) may also be benefitting the currency today, as well as an uptick in iron ore prices.

Major gains for the ‘Aussie’ could be limited by rising Covid-19 cases in China, however. Restrictions have been extended to cities in the tourism hub of Hainan this week. The country’s ‘Covid zero’ policy has led to strict lockdown measures to curb the spread of the virus.

The prospect of a more cautious rate hike path from the Reserve Bank of Australia (RBA) may also be weighing on AUD today. The central bank has remained dovish in its recent rhetoric.

GBP/AUD Exchange Rate Forecast: Will UK Inflation Rise In Line with BoE Forecasts?

Looking to the coming week for the Pound, employment figures on Tuesday could cause movement in the currency. If June’s rate of unemployment remains unchanged at 3.8% then it may suggest a tight labour market, potentially giving the BoE more support for further rate hikes.

On Wednesday, July’s inflation figures could see mixed movement in Sterling if they rise in line with the BoE’s forecasts. The Pound could see increased rate hike bets, but concerns over the UK’s cost-of-living crisis may weigh on the currency.

Friday’s retail sales figures could also pull Sterling lower if they fall for a third consecutive month.

For the Australian Dollar, Monday’s economic data from China could help to bolster the ‘Aussie’ if it prints as positively as forecast.

Thursday’s employment data may also push AUD higher if unemployment remains low as forecast. The figures could lead to heightened speculation over further interest rate hikes from the RBA.

Gareth Monk

Contact Gareth Monk


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