Pound Australian Dollar (GBP/AUD) Weekly Forecast: Exchange Rate Buoyed by UK Inflation Data

The Pound Australian Dollar (GBP/AUD) exchange rate peaked last week as UK inflation printed below forecasts, easing cost-of-living concerns. Into this week, dovish minutes from the Reserve Bank of Australia (RBA)’s latest policy meeting are subduing the Australian Dollar (AUD).

What’s Been Happening: Sterling Faces Mixed Trading Stimuli

Geopolitical tailwinds buoyed GBP/AUD at the beginning of last week, as the Ukrainian military managed to recapture several of the country’s key transport hubs, boosting market mood.

Meanwhile, upbeat Australian confidence data was unable to bolster the ‘Aussie’, as widespread risk aversion capped gains for risk-sensitive currencies.

On Tuesday, a mixed employment report lent initial tailwinds to the Pound, as UK unemployment hit a 48-year low. On the other hand, real wages fell and economic inactivity was shown to have increased.

Midweek, Sterling trended up as headline inflation in the UK printed below forecasts while core prices rose. The data suggested living cost pressures were easing but maintained pressure upon the Bank of England (BoE) to hike interest rates aggressively.

Simultaneously, the Australian Dollar was weakened by strong inflation data from the US, which renewed fears of a global recession.

At the end of the week, GBP/AUD trended lower, as AUD was strengthened somewhat by positive Chinese data. GBP tailwinds waned as retail sales in the UK fell by 1.6% rather than the 0.5% predicted.

Three Things to Watch Out for This Week

  1. BoE Interest Rate Decision

The Bank of England will decide on Wednesday whether to raise interest rates substantially. A 50bps hike is expected: anything less will likely subdue GBP/AUD.

  1. PMI Data

Manufacturing and services data will be released on Friday for both the UK and Australia. Both countries are expected to release mixed PMIs – a slowdown in growth could cap gains.

  1. Market Sentiment and External Factors

The Pound traded quietly at the end of last week ahead of the funeral of Queen Elizabeth II. A subdued market mood may dampen Sterling activity this week.

Pound Australian Dollar (GBP/AUD) Forecast

GBP/AUD may also be affected by the UK’s industrial trends order tomorrow, which is expected to have fallen further in September. If the data prints as expected, Sterling is likely to dip.

Olivia Evershed

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