Pound Australian Dollar (GBP/AUD) Exchange Rate Rebounds on UK Employment Data

GBP/AUD Exchange Rate Fell Overnight on RBA Meeting Minutes

The Pound Australian Dollar (GBP/AUD) exchange rate tumbled overnight in response to the release of the Reserve Bank of Australia (RBA)’s latest meeting minutes. GBP/AUD subsequently regained losses, however, following a mixed UK jobs report.

At the time of writing, GBP/AUD is trading at A$1.7186, virtually unchanged from today’s opening levels.

Pound (GBP) Supported by Better-Than-Expected Wage Data

The Pound (GBP) is trending up against several peers this morning, buoyed by an increase in regular pay and a greater-than-forecast drop in benefit claimants. Capping gains, however, is a stalling of the UK’s unemployment rate, as well as weaker-than-expected employment change.

Furthermore, although average earnings (excl. bonuses) increased, real wages adjusted for inflation continued to fall – by a record 3%. Commenting on the data, Professor Len Shackleton, labour market expert at the Institute of Economic Affairs, said:

‘The overall picture on pay is concerning, particularly as the big anticipated increases in energy prices are yet to work through.

While a summer of strikes may push up pay of some highly organised workers, particularly in the public sector, this will do nothing for the vast majority of private sector workers who will be dependent on the state of demand for their particular services.’

In the meantime, however, private sector workers are faring best of the two, as their pay packets grow more than three times faster than those of public sector workers.

In terms of unemployment, the percentage of those registered as out of work remained the same as in May, near a half-century low, but ticked up 0.1% on the quarter. Analysts forecast unemployment will climb further still in the months ahead, as the economy falls into a recession.

Meanwhile, the number of jobs added to the economy grew by far less than expected, as companies in the UK become more cautious about hiring ahead of an anticipated rise in operation costs.

Australian Dollar (AUD) Weakened by RBA Minutes, Risk-Off Mood

The Australian Dollar (AUD) continues to tumble against the majority of its peers at the time of writing, a move prompted by downbeat meeting minutes from the Reserve Bank of Australia (RBA).

The central bank struck a dovish tone on 2 August, as could be surmised by investors’ initial reaction to the RBA’s announcement last fortnight. Policymakers said:

‘The board expects to take further steps in the process of normalizing monetary conditions over the months ahead, but it is not on a pre-set path.

The path to achieve this balance is a narrow one and subject to considerable uncertainty. The behaviour of household spending continued [in early August] to present a key source of uncertainty for the outlook.’

Consumer confidence in Australia has also weakened, but the RBA expects continuing domestic demand ahead, given low unemployment and savings accrued during the pandemic.

Furthermore, most economists remain convinced that the central bank will hike interest rates by another half point in September despite their cautious rhetoric.

Nevertheless, AUD gains are capped further by a weak market mood, which saps appeal for perceived-riskier currencies. US stock index futures are losing between 0.06% and 0.16%, while the benchmark 10-year US Treasury bond yield levels below 2.8%.

GBP/AUD Exchange Rate Forecast: Pound to Firm on Higher UK Inflation?

Looking ahead, UK headline inflation is expected to print at 9.8% tomorrow, with core inflation hitting 5.9%. If the data meets expectations, Sterling could climb on hopes of more aggressive monetary policy tightening.

On the other hand, the Bank of England (BoE) is already struggling to balance its mandates to control inflation while promoting economic growth. Higher price pressures unaccompanied by tighter monetary policy may result in higher levels of poverty and lower consumer confidence.

Meanwhile, a lack of significant AU data leaves the ‘Aussie’ to trade on external factors. If risk sentiment improves, AUD might enjoy tailwinds, while optimism from China could further support the Australian Dollar. The country’s state planner has announced multiple measures to avoid recession, including 65 fixed-asset investment projects.

Olivia Evershed

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