Pound Australian Dollar (GBP/AUD) Exchange Rate Weakened on Fears of Economic Impact of Fiscal Aid

Pound Australian Dollar (GBP/AUD) Slumped on Potentially Damaging Energy Bailout

The Pound Australian Dollar (GBP/AUD) exchange rate slipped on fears of the long-term cost of Prime Minister Liz Truss’ two-year ‘energy price guarantee’.

At time of writing, the GBP/AUD exchange rate is around $1.7104, a 0.60% plunge from this morning’s opening levels.

Pound (GBP) Slumped on Economic Impact of Truss’ Support Package

The Pound (GBP) is wavering against its peers today as concerns of how the energy bill relief plan will be funded. The two-year ‘energy price guarantee’ announced yesterday will see energy bills capped at £2500 a year.

With the UK embroiled in a worsening cost-of-living crisis, both GBP investors and the UK waited on tenterhooks for the promised fiscal support. As the energy bill cap was set to rise by 80% this October, Truss intervened and capped it at £2500. Sterling initially soared on the news but soon came crashing down on fears of the long-term economic impact.

Since Truss has repeatedly refused to consider a windfall tax on energy supplier profits, and question marks over how these measures will be funded are weighing on the Pound. With the financial support set to cost in excess of £100bn, further borrowing could damage the economy in the long term. Concerns were also raised on how those outside of the mainstream energy market, those that use heating oil, will be assisted under the new measures.

Until the details are released on how such support can be financed, the Pound could remain under pressure.

Australian Dollar (AUD) Buoyed on Risk-On Impulse

The Australian Dollar (AUD) continues a relentless surge on a positive shift in market sentiment today. An upbeat tone in the equity markets is further buoying the risk-sensitive ‘Aussie, despite softer-than-expected Chinese inflation.

Headline inflation in Australia’s biggest trade partner unexpectedly slowed to 2.5% YoY for August, missing forecasts of 2.8%. PPI figures also missed expectations and printed lower than expected. China’s producer price inflation eased to an 18-month low. With historically high heatwaves and surging Covid cases, the fall marks the 20th consecutive month of slowing prices.

However, the Australian Dollar could come under renewed pressure amid spikes in Covid cases in China. With China maintaining its zero-Covid policy, restrictions threaten to curb the already-shaky economic recovery.

Pound Australian Dollar Exchange Rate Forecast: UK GDP Growth to Slow Further?

Looking ahead to next week, the Pound Australian Dollar could tick lower amid a flurry of UK data. GDP is expected to contract again for the month of July, marking a second consecutive month of slowdown.

Meanwhile, any further developments in China’s stuttering economic recovery could weigh on the ‘Aussie’.

Danny Tingle

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