Pound Australian Dollar Exchange Rate Narrows as UK Inflation Soars

Pound Australian Dollar (GBP/AUD) Exchange Rate Rangebound as UK Inflation Comes in Hot

The Pound Australian Dollar (GBP/AUD) exchange rate is narrowing this morning, as spiralling UK inflation illustrates the cost-of-living crisis.

At the time of writing, GBP/AUD was trading at around AU$1.7554, displaying little change from the morning’s opening rates.

Pound (GBP) Softens as Inflation Deepens Cost-of-Living Crisis

The Pound (GBP) is seeing mixed trade this morning, as hotter-than-expected inflation data shows a bleak economic outlook.

Headline inflation printed at 11.1%, above the forecast of 10.7%. While this jump may prompt higher interest rate hikes from the Bank of England (BoE), analysts remain cautious.

The inflation is highlighting a widening gulf between high- and low-income households, striking the poorest in the country substantially harder.

Jack Leslie, Senior Economist at the Resolution Foundation explored this further. He stated:

‘Rising energy bills and rapid food prices mean that low-income households now face an effective average inflation rate of around 12.5%, while in the cold winter months, the over 80s are already facing inflation rates of around 15.3%.’

The rise comes after yesterday’s wage growth data pointed to wages falling behind inflation. A 75bps rate hike from the BoE is seeming more likely, but investors remain cautious ahead of tomorrow’s Autumn Statement.

Australian Dollar (AUD) Mixed despite Rate Hike Encouragement From IMF

The Australian Dollar (AUD) is trading cautiously this morning, as the market mood caps potential gains for the ‘Aussie’.

The International Monetary Fund (IMF) encouraged the Reserve Bank of Australia (RBA) to increase their tightening policy, warning of slowing growth in 2023.

Their report stated:

‘The RBA should continue to raise interest rates, and fiscal policy should support it in moderating domestic demand growth through judicious budget execution and saving of any revenue overperformance.’

However, any increased rate hike bets seem to have been muted by an increasingly cautious market mood. The shift comes as governments continue to examine the recent missile strike in Poland. Tensions remain high due to uncertainty around the missile’s origin, which is preventing bullish trade.

As such, the risk-sensitive ‘Aussie’ is unable to capitalise on the IMF’s encouragement, but a mood shift may prompt gains.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: Autumn Statement to Boost Sterling?

Looking ahead, tomorrow’s Autumn Statement from the UK government is likely to be the key driver of movement for GBP/AUD.

With the pressure on Chancellor Jeremy Hunt to ‘balance the books,’ spending cuts and tax hikes are expected. While the return to fiscal orthodoxy may buoy GBP, it could prompt weakness due to investors remaining mindful of the UK’s cost-of-living crisis.

For AUD, tomorrow morning’s unemployment rate for October is expected to increase from 3.5% to 3.6%. The increase in unemployment may dent the ‘Aussie’, by stoking fears of economic slowdown.

John Mulcahey

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