Pound Australian Dollar (GBP/AUD) Exchange Rate Soars as UK Inflation Cools

Pound Australian Dollar (GBP/AUD) Climbs as Cost-of-Living Starts to Ease

The Pound Australian Dollar (GBP/AUD) exchange rate is strengthening as UK inflation eases to 9.9% after drop in fuel prices.

At time of writing, the GBP/AUD exchange rate is around $1.7135, a 0.42% jump from this morning’s opening levels.

Pound (GBP) Surged as Inflation Eases for First Time in 11 Months

The Pound (GBP) rallied against all its major rivals today as inflation dropped below 10% for first time since October last year.

Annual inflation was expected to climb to 10.2%, but the CPI reading for August ticked lower and came in at 9.9%. A fall in petrol prices was the main driver in inflation easing for the first time since October 2021. However, despite tumbling fuel prices, food and clothes continued to edge higher. Food and non-alcoholic drinks continued to surge and increased at an annual rate of 13.1%, the highest rate since 2008.

Despite a softening in the CPI reading, the Bank of England (BoE) is still on track to raise interest rates by 50bps at next week’s meeting. Inflation remains almost five times higher than the central bank’s target rate of 2%. But the first easing inflation doesn’t necessarily mean that the cost-of-living crisis is easing just yet.

Further spikes in inflation are on the horizon as the core inflation continues to climb. Excluding volatile items such as energy and food, core inflation rose 6.3% YoY. Paul Dales, Chief UK Economist at Capital Economics, said:

‘The easing in CPI inflation from 10.1% in July to 9.9% in August is a bit of a relief after yesterday’s US CPI shocker, but overall and core UK CPI inflation haven’t peaked yet. As such, the Bank of England will have to continue turning the screws.’

Australian Dollar (AUD) Subdued on Mounting Global Recession Fears

The Australian Dollar (AUD) fell against most of its peers today in the wake of hotter-than-expected US inflation data fuelling recession fears once more. CPI reading in the US printed slightly higher than expected at 8.3%, versus forecasts of 8.1%. An uptick in inflation saw bets increase for a full 1% rise at the next policy meeting, stoking recession fears as the Federal Reserve continues to rein in inflation.

Meanwhile, persistent Covid-related lockdowns in China are likely to weigh on the ‘Aussie’ as strict measures imposed could further curb the stalling Chinese economy. The south-western province city of Chengdu went into lockdown at the beginning of the month and is now locked down indefinitely, joining 65million Chinese citizens currently locked down throughout the country.

 Pound Australian Dollar Exchange Rate Forecast: Australian Jobs Data to Sink the Aussie?

With data remaining thin on the ground for the rest of the day, focus will shift to tomorrow. Release of crucial jobs data for Australia will highlight the strength of the labour market. If the unemployment rate remains steady, the ‘Aussie’ could be boosted.

Meanwhile, the data calendar remains sparse for the Pound until Friday. Until then, domestic issues will continue to weigh on Sterling as the cost-of-living crisis rumbles on.

Danny Tingle

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