The Pound Australian Dollar (GBP/AUD) exchange rate wavered erratically throughout the week amid U-turns from the UK government and a dovish RBA rate hike.
What’s Been Happening: GBP/AUD Exchange Rate Fluctuated on UK Political Instability
The Pound (GBP) opened the week on the front foot as the UK government reversed the decision to cut the top tax rate. Hopes of further reversals inspired investors as Sterling hit a two-month high against the ‘Aussie’.
Midweek and Sterling found some modest support in the better-than-expected final services PMI. An expected contraction of 49.2 was met with a reading of 50. However, a stagnating service sector still meant the lowest reading in 19 months.
Further weighing on the Pound was the downgrading of the UK’s credit outlook. Fitch credit agency revised their outlook to negative from stable, highlighting the economic uncertainty surrounding the UK.
End of the week and Sterling recovered modestly despite the gloomy outlook, mainly down to some repositioning from the previous day’s losses.
Meanwhile, the Australian Dollar (AUD) started the week positively as investors geared up for a 50bps rate hike from the Reserve Bank of Australia (RBA). However, a smaller 25bps interest rate raise was delivered, souring investors’ mood.
Midweek and an improving risk sentiment helped limit the losses from the RBA’s decision. However, a narrower-than-expected trade surplus capped gains.
End of the week and a risk-averse market returned. Escalating geopolitical tensions weighed heavy on risk-sensitive currencies, including the ‘Aussie’.
Three Things to Watch Out for This Week
- UK GDP
An expected contraction in the UK economy could weigh on the Pound.
- UK Jobs Data
Despite expectations of a continued low unemployment rate, unemployment benefits are expected to climb for the second consecutive month.
- UK Politics
The turbulent political climate could deter investors once again as confidence in the UK government remains low.
Pound Australian Dollar Forecast
Elsewhere, the situation in Ukraine will be closely monitored. Any negative headlines to emerge could weigh on global market sentiment, and in turn, the Australian Dollar.