The Pound Australian Dollar (GBP/AUD) exchange rate wavered last week due to variable risk sentiment and the UK’s cost-of-living crisis. This week, the election of a new UK prime minister could inspire some volatility.
What’s Been Happening: UK Living Costs Mount
The Pound (GBP) weakened against the Australian Dollar on Monday as a national holiday in the UK exposed GBP to losses.
Subsequently, Sterling’s downtrend was extended as credit card borrowing in the UK rose to its highest levels since 2005. The theme of higher living costs kept a lid on Pound gains through the week.
Risk-on sentiment supported the ‘Aussie’ on Tuesday, fuelled in part by the prospect of an emergency intervention in the Eurozone to cap consumer gas prices.
Midweek, Chinese manufacturing data revealed a second month of contraction; a second PMI on Thursday confirmed the sector had come under pressure. Headwinds in the Chinese economy weighed upon AUD, boosting the Pound Australian Dollar exchange rate.
On Thursday, UK data exceeded expectations, lending some support to the Pound; but ultimately, GBP/AUD sank on account of UK analysts’ downbeat forecasts and a risk-on trading mood which bolstered the ‘Aussie’.
At the end of the week, projections that the AU jobs market would recover in 2023 cemented AUD gains.
Three Things to Watch Out for This Week
- UK Election Results
The UK’s next prime minister will be elected today, likely inspiring volatility as the results will determine how the cost-of-living crisis is handled.
- RBA Interest Rate Decision
The Reserve Bank of Australia (RBA) is expected to hike interest rates by 50bps tomorrow. If policymakers strike a dovish tone, AUD could tumble.
- BRC Retail Sales Monitor
The British Retail Consortium (BRC) will publish data for the year to August this week. Sales growth is expected to have slowed, potentially denting GBP.
Pound Australian Dollar Forecast
Elsewhere, Australian GDP and trade balance data could affect GBP/AUD, although political developments in the UK may undermine the influence of economic stimulus.
Chinese data could also have an impact on the exchange rate: if China’s trade surplus shrank in August, the ‘Aussie’ could weaken.