The Pound Australian Dollar (GBP/AUD) exchange rate is ticking up this morning as Britain’s economy expanded in July. The UK’s trade deficit shrank by more than expected as annualised production increased.
What’s Been Happening: RBA Hikes Interest Rates, Truss Announces 2-Year Energy Price Cap
GBP/AUD dropped to a 58-month low at the start of last week, as the UK’s finalised services PMI missed expectations. The exchange rate subsequently rebounded as bearish trading capped gains for the Australian Dollar.
On Tuesday, the election of UK Prime Minister Liz Truss initially supported the Pound (GBP), as investors anticipated imminent support for the UK’s economy. The Reserve Bank of Australia (RBA)’s 50bps interest rate failed to buoy AUD.
Midweek, Sterling wavered as the likelihood of an energy price freeze suggested inflation may soften, reducing pressure upon the Bank of England (BoE) to tighten monetary policy. ‘Aussie’ gains were likewise capped as Chinese data disappointed.
On Thursday, Truss confirmed her plan to freeze energy prices for 2 years. The price cap will be funded by government borrowing, the prospect of which subdued Pound investment.
At the end of the week, AUD firmed against GBP and its other peers, buoyed by a risk-on mood. In the UK, the death of Queen Elizabeth II weighed upon Sterling sentiment.
Three Things to Watch Out for This Week
- Employment Reports
Both the UK and Australia will release jobs reports this week. Hiring is expected to have increased in both countries, lending possible tailwinds.
- AU Confidence Data
Both consumer and business confidence in Australia are expected to have weakened, potentially denting AUD sentiment.
- UK Inflation
Consumer price inflation in the UK looks to have risen to 10.2% in August. While this would mark a new 40-year high, it would also represent a slowing pace of inflation, capping possible losses.
Pound Australian Dollar Forecast
UK retail data could also influence GBP/AUD this week: sales in August are expected to have contracted by 0.6%, likely applying headwinds.