Pound Australian Dollar Exchange Rate Fluctuates as Cost-of-Living Crisis Continues
The Pound Australian Dollar (GBP/AUD) exchange rate is wavering this morning in the wake of UK inflation softening to 10.7%.
At time of writing the GBP/AUD exchange rate is trading around $1.8031, relatively unchanged from this morning’s opening levels.
Pound (GBP) Undermined by Prolonged Cost of Living Fears
The Pound is struggling for demand this morning as headline CPI inflation softened to 10.7%. Against an expected 10.9%, inflation eased from its 41-year high, tempering further rate hike expectations. However, despite a softening of inflation, concerns remain over the cost-of-living crisis.
Core inflation, excluding volatile items such as energy and food prices, also unexpectedly declined to 6.3%. Despite signs showing that inflationary pressures are easing, the economic outlook for the UK remains bleak. Inflation still sits far above the Bank of England’s (BoE) target rate of 2% and is expected to remain elevated for some time.
However, further weighing on Sterling are fears of the cost-of-living crisis expected to worsen in the coming year. Several economists are warning that despite modest easing of inflationary pressures, living cost squeezes will deepen. The Resolution Foundation warns that the poorest households are suffering higher inflation than average. Despite inflation falling at its fastest rate in almost a year and a half, prices remain elevated. Jack Leslie, senior economist at the Resolution Foundation, added:
‘Britain may now be past its inflation peak, which is good news for policy makers at both the Bank and Treasury as they grapple with rising interest rates and public debt.
‘But with price rises still massively outstripping pay rises – and Britain’s poorest families facing an inflation rate of over 12 per cent – families are still getting poorer month-on-month, and the cost-of-living crisis will continue to deepen in 2023.’
Australian Dollar (AUD) Supported by Upbeat Market Mood
Meanwhile, the Australian Dollar is enjoying modest success this morning in the wake of cooling US inflation. With headline CPI softening for the fifth consecutive month, tempered rate hike bets supported the risk appetite.
Expectations of a slowing pace of monetary tightening from the Federal Reserve could see a spike in demand for riskier currencies. A buoyant market mood could see risk-sensitive currencies such as the Australian Dollar climb.
With the crucial interest rate decision later in the day from the Fed, a dovish turn from the central bank could support the ‘Aussie’.
Pound Australian Dollar Forecast: BoE Interest Rate Decision to Spur Sterling?
Looking ahead, the Pound Australian Dollar exchange rate could see movement as the market turns its attention to central bank decisions. The BoE will announce their latest interest rate decision tomorrow. A deviation from the expected 50bps rate hike could see the Pound sink or swim.
Meanwhile, the Fed interest rate decision could have a drastic effect on the global market mood. Again, a deviation from the priced in 50bps rate hike could see the risk-sensitive ‘Aussie’ climb on a dovish turn.