Pound Australian Dollar (GBP/AUD) Climbed Despite UK GDP Shrinking
The Pound Australian Dollar (GBP/AUD) exchange rate is soaring today even after the UK’s economy unexpectedly contracted by 0.3%.
At time of writing, the GBP/AUD exchange rate is around $1.7630, a 0.78% jump from this morning’s opening levels.
Pound (GBP) Rises Despite UK Economy on Brink of Recession
The Pound (GBP) is enjoying increased demand this morning despite data showing that GDP contracted by 0.3% MoM for August. Against expectations of a stagnating economy, weakness in manufacturing contributed to the slide. Yael Selfin, Chief Economist at KPMG UK said of the data:
‘The ongoing squeeze on household finances continues to weigh on growth, and likely to have caused the UK economy to enter a technical recession from the third quarter of this year.’
Providing a welcome boost to the Pound is that the Bank of England (BoE) will extend their temporary gilt purchases if market volatility persists. However, the measures are officially due to end on Friday. BoE Governor Andrew Bailey warned pension firms they have ‘three days left to resolve issues’.
Elsewhere, Prime Minister Liz Truss is set to deliver another U-turn. Having previously rejected calls for windfall taxes on fossil fuel companies, Truss is set to announce windfall taxes on renewable power companies. In the wake of the mini-budget market meltdown, fears grew over how the UK government plans to fund their ‘growth plan’ without incurring huge debts.
Australian Dollar (AUD) Softens amid Mixed Market Mood
Meanwhile, the Australian Dollar (AUD) is struggling for demand this morning as a mixed market mood fails to rally investors.
Global growth fears were relayed by the International Monetary Fund (IMF) as their latest projections paint a bleak outlook. The global economic growth forecast for 2023 was lowered from 2.9% to 2.7% amid escalating food and energy costs. As for Australia, IMF predicts the economy will grow 1.9% through 2023, down from a 2.5% forecast in April.
Elsewhere, speeches from Reserve Bank of Australia (RBA) policymakers have failed to lift the ‘Aussie’. Assistant Governor Luci Ellis emphasised the neutral rate as a guide for monetary policy, not a destination. Meanwhile, the Treasurer Jim Chalmers tried to calm AUD investors by dismissing the odds of a recession.
Pound Australian Dollar Exchange Rate Forecast: BoE Speeches to Bolster the Pound?
Looking ahead, the Pound Australian Dollar exchange rate could see further movement as several BoE MPC members are set to speak. Chief Economist Huw Pill had previously spoke of a ‘necessary monetary policy response’ from the central bank over the government’s fiscal loosening plans. Investors will keep an eye on any further hints as to how the BoE will act to calm markets.
Elsewhere, with a lack of major data for the Australia Dollar, overseas news could play a part in the ‘Aussie’s movement. Any further headlines out of Ukraine or China could weigh on global market sentiment, and in turn, the Australia Dollar.