Pound Australian Dollar (GBP/AUD) Exchange Rate Narrows as UK Inflation Falls
The Pound Australian Dollar (GBP/AUD) exchange rate is rangebound this morning, as UK inflation continues to cool.
At the time of writing, GBP/AUD is trading at around AU$1.7568, showing little movement from the morning’s opening rates.
Pound (GBP) Underpinned by Inflation Data
The Pound (GBP) is trading widely this morning, following today’s release of December’s inflation data.
Headline inflation fell from 10.7% to 10.5%, matching expectations. Similarly, core inflation held at 6.3%. However, core services inflation increased from 6.4% to 6.8%. Core inflation holding ground, alongside this jump in core services, may be prompting bets of higher tightening from the Bank of England (BoE).
Francesco Pesole, FX Strategist at ING, explored this further. He stated:
‘[This is] a development that the BoE should particularly take into consideration, and when added to yesterday’s wage data should tilt the balance towards a 50bp hike in February.’
Further lending support to Sterling could be reports that Chancellor Jeremy Hunt is planning a spring budget with no tax cuts. Insiders have stated that the focus is currently on repairing the UK’s economic reputation, and steadying the economy.
Investors are likely cheered by this, following on from 2022’s disastrous mini-budget, as Hunt’s fiscally orthodox approach remains reassuring.
Australian Dollar (AUD) Rises amid Chinese Optimism
The Australian Dollar (AUD) is enjoying support this morning, as analysts turn optimistic over China’s economic recovery.
The news of mass travel ahead of Chinese Lunar New Year is providing hope that the Chinese economy is moving. Due to the ‘Aussie’s nature as a Chinese proxy-currency, the optimism is lending support to AUD exchange rates.
As yesterday showed that the Chinese economy had slowed down sharply, investors are hoping for signs of further consumption.
Further supporting AUD may be a risk-on market mood, allowing the risk-sensitive ‘Aussie’ to capitalise on the upbeat trade.
However, a fall in both coal and iron ore prices could be capping AUD’s gains during the session. At the time of writing, iron ore prices have fallen by roughly 0.8% from the morning’s opening rates.
Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: Retail Recovery to Boost GBP?
Looking ahead for the Pound (GBP), December’s retail sales data release on Friday is in the spotlight. Analysts forecast an increase from -0.4% to 0.5%, which could provide a boost to GBP by showing a recovery in retail.
Ahead of that, liquidity is thin. Thursday sees no data releases, so Sterling may be affected by domestic headlines. Industrial action is continuing across the UK, with sectors beginning to coordinate walkouts. Further news of this could dent Sterling.
For the Australian Dollar (AUD), tomorrow brings December’s labour market data. The Australian unemployment rate is forecast to hold steady at 3.4%, pointing to a continually tight labour market. This could boost AUD as it leaves room for further tightening from the Reserve Bank of Australia (RBA).
Elsewhere, Chinese New Year Celebrations beginning from Friday could mute the ‘Aussie’ due to it being a Chinese proxy-currency.