Pound Australian Dollar Exchange Rate Weakens on Return to 40-Year High Inflation
The Pound Australian Dollar (GBP/AUD) exchange rate drops today in the wake of UK inflation returning to double digits.
At time of writing the GBP/AUD exchange rate is trading around $1.7885, a 0.40% drop from this morning’s opening levels.
Pound (GBP) Undermined by Surging CPI Inflation
The Pound is struggling to find much support this morning after annual CPI inflation jumped to 10.1%, matching July’s high.
The return to double digit CPI was marginally higher than expected, jumping from 9.9% in August to 10.1%. Higher food prices contributed to the surge back up to July’s 40-year high, along with soaring energy prices. Food and drink prices soared by almost 15%. The fastest jump since 1980. Offsetting a bigger jump in CPI was the falling price in fuel.
Meanwhile, core inflation, excluding volatile items such as fuel and energy, rose to a record high of 6.5%. Exceeding market forecasts, the jump from 6.3% to 6.5% could see the cost-of-living crisis worsen yet. Charities are warning that if benefits do not rise in line with inflation, poverty would increase. Rebecca McDonald, Chief Economist the Joseph Rowntree Foundation, said:
‘It is morally indefensible that the government should still be considering leaving people with even less ability to pay for what they need.’
Lending some modest support, however, is the steadying of the bond markets. The return to a semblance of fiscal discipline has calmed jittery markets and has seen a return to lower gilt yields. The Bank of England (BoE) also confirmed yesterday that it intends to go ahead with quantitative easing from November 1.
Australian Dollar (AUD) Under Pressure amid Risk-Averse Markets
Meanwhile, the Australian Dollar also struggled for demand this morning amid an increasingly cautious market.
Recession fears continue to mount unabated as Beijing reports the highest Covid cases since July. Compounding matters is the delay of GDP data from the world’s second largest economy, as China remains tight-lipped around the state of their economy.
However, continued to lend some modest support is the maintained hawkish stance from the Reserve Bank of Australia (RBA). With a resilient labour market and a relatively strong economy, AUD investors are confident of further rate hikes.
Pound Australian Dollar Forecast: Can PM Liz Truss Restore Confidence?
Looking ahead, the Pound Australian Dollar exchange rate could see further movement as Prime Minister Liz Truss faces questions at midday. The first PMQs since Truss sacked Kwasi Kwarteng and instated Jeremy Hunt as Chancellor, political instability could weigh on the Pound.
Meanwhile, any further developments from China could weigh on global market sentiment. The risk-sensitive ‘Aussie’ could slide in the wake of any negative headlines.