The Pound Australian Dollar (GBP/AUD) exchange rate rose in the first half of last week on dovish minutes from the Reserve Bank of Australia (RBA) and sky-high UK inflation. Subsequently, GBP/AUD fell on UK living cost concerns and strike action.
What’s Been Happening: UK Inflation Hits Double Figures, Strike Action Threatens Economic Repercussions
The ‘Aussie’ came under pressure from the RBA’s latest minutes at the beginning of the week, as policymakers struck a dovish tone. Meanwhile, the Pound (GBP) was buoyed by better-than-expected wages data.
Regular pay increased in the 3 months to June and benefit claimants fell by more than expected.
Midweek, UK inflation printed at 10.1% rather than the 9.8% forecast, triggering an immediate uptick in Sterling exchange rates. GBP traders hoped the data would encourage a 50bps rate hike from the Bank of England (BoE) next month.
The Pound subsequently dipped against its peers, however, as cost-of-living concerns mounted amid downbeat forecasts. Cornwall Insight, a consultancy firm, predicted the energy price cap may reach £4,426 in April 2023.
Escalating rail strikes in the UK also subdued GBP, disrupting business activity and threatening to incite industrial action across other sectors.
Toward the end of the week, AUD gained in several exchange rates as a drop in Australia’s employment rate was offset by a fall in unemployment, to a new record low of 3.4%.
Three Things to Watch Out for This Week
- PMI Data
Although flash PMI data is expected to reveal a softening of expansion, Australia’s manufacturing activity is forecast to have expanded for the twenty-sixth consecutive month, inspiring possible AUD tailwinds. - Central Bank Dynamics
Given RBA headwinds last week, further signals from the central bank could buoy or suppress AUD. Meanwhile, the BoE may address last week’s record-high inflation reading. - UK Strike Action
As criminal barristers threaten to strike, further industrial action could dampen appeal for the Pound.
GBP/AUD Forecast
Elsewhere in the UK, both CBI industrial trends and distributive trades for the month of August are predicted to have fallen, potentially weighing upon GBP/AUD.