Pound Australian Dollar (GBP/AUD) Exchange Rate Firms as UK Unemployment Falls to 48-Year Low

Pound Australian Dollar Exchange Rate Extends Climb as AUD Plummets

(Updated 15:40, 13/09/2022) The Pound Australian Dollar (GBP/AUD) exchange rate continues to climb through the European afternoon, as a downside in the ‘Aussie’ outweighs Sterling headwinds.

The Australian Dollar succumbs to pressure as US core consumer price inflation increased by more than expected in August, boosting expectations for a hawkish Federal Reserve and subsequently increasing the perceived likelihood of a global recession.

Markets are now contemplating the possibility of a 100bps interest rate hike at the Fed’s policy meeting next week, followed by a 75bps hike in November. Such moves would be remarkable and may pressure other central banks to tighten their monetary policy more aggressively.

While positive on the surface, rapidly escalating interest rates at a time of economic volatility exacerbate price hikes facing consumers, weakening spending power and threatening an economic contraction.

Such worries have triggered widespread risk aversion, which is illustrated by a steep decline in equity markets.

Original article continues below:

GBP/AUD Exchange Rate Buoyed by UK Employment Data

The Pound Australian Dollar (GBP/AUD) exchange rate is trending up this morning as upbeat UK employment data supports the Pound (GBP) while the Australian Dollar (AUD) comes under pressure despite a positive confidence release.

At the time of writing, GBP/AUD is trading at A$1.6995, up 0.2% from today’s opening levels.

Pound (GBP) Supported by Predominantly Positive Jobs Report

The Pound is climbing against the majority of its peers this morning, buoyed by a better-than-expected jobs report. In July, unemployment fell to a 48-year low, while regular pay in the three months to July increased by 5.2%.

Positivity is tempered, however, by news that real wages continue to fall amid persistent inflationary pressures. Public sector workers are worse off, as regular pay grew by 2% compared with 6% in the private sector.

The Office for National Statistics (ONS) calculated that real wages contracted by 2.8% excluding bonuses.

Furthermore, businesses are struggling on account of fewer people looking for work, according to experts. Jane Gratton, the head of people policy at the British Chambers of Commerce, said:

‘With firms doing their best to keep afloat during a period of spiralling costs, they are also facing an extremely tight labour market which is further impacting their ability to invest and grow.’

Others suggested the fall in unemployment could be linked to a rise in the number of employees identifying as long-term sick. James Smith, an ING economist, comments:

‘Alarmingly, the number of people classifying as not working due to long-term sickness is up by almost 400,000 since late 2019, and almost 150,000 in the last two months’ worth of data alone.’

Australian Dollar (AUD) Subdued despite Upbeat Data

The Australian Dollar is succumbing to pressure so far today, defying positive confidence data and a risk-on trading mood.

During the Asian session, Australian data revealed that consumer confidence rose to 84.4 in September rather than weakening to 80.5 as forecast. Furthermore, NAB business confidence printed at 10 rather than 6, also marking an unexpected improvement.

Regarding the former, the Westpac banking corporation observed that the index of Consumer Sentiment jumped by 3.9% month-over-month, commenting:

‘The improvement is a little surprising, especially given continued sharp rises in the cost of living and the RBA’s decision during the survey week to make another 50bp hike in the cash rate.’

In terms of business confidence, it appears that easing fears over the potential impact of higher interest rates helped the index to rebound. Business conditions improved as sales rose, with employment and profitability remaining strong in August.

Alan Oster, NAB Group’s Chief Economist, said of the data:

‘Overall, the survey indicates that demand remained strong. We continue to expect that inflation and rising interest rates will eventually begin to weigh on the household budget. So far, however, it appears this dynamic is yet to take hold.’

GBP/AUD Exchange Rate Forecast: UK Inflation Next on the Agenda

Looking ahead, trading through tomorrow’s session will likely be directed by UK inflation data. The CPI is expected to reveal that consumer prices rose by 10.2% in the year to August – an increase on July and a new 40-year high, albeit a smaller monthly rise than previous.

Elsewhere, external factors may have some impact upon the GBP/AUD. Reports in the UK suggest that the new Chancellor of the Exchequer may give a ‘fiscal statement’ next week, the prospect of which could inspire bearish anticipation.

Olivia Evershed

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