Pound Australian Dollar (GBP/AUD) Exchange Rate Declines as UK Sales Data Raises Recession Fears
The Pound Australian Dollar (GBP/AUD) exchange rate fell sharply this morning as a drop in UK retail sales put heavy pressure on the Pound (GBP).
At the time of writing, GBP/AUD is trading at around AU$1.7801, down 0.7% from this morning’s opening levels.
Pound (GBP) Slides as UK Sales Contract
The Pound is down across the board today after the UK’s latest retail sales data reported a shock contraction last month.
In December, the downturn in sales growth intensified from -0.5% in the previous month to -1%. Economists had expected sales to return to positive territory, with a forecast rise of 0.5%.
Furthermore, the drop came during the Christmas period – often a bumper month for UK retailers ahead of a leaner January.
The surprise decline in sales has raised fresh fears about the prospect of a UK recession. Recent better-than-expected data had lifted hopes that the UK may have avoided a recession at the end of last year, but today’s data casts doubts on that.
UK consumers seem to be tightening their belts as the cost-of-living crisis bites, which will have knock-on effects for the British economy.
This downbeat outlook is weighing heavily on the Pound today.
Australian Dollar (AUD) Firms amid Risk-On Mood
Meanwhile, a more upbeat mood in global markets is lifting the risk-sensitive Australian Dollar (AUD).
Risk appetite has been increasing since positive US economic data yesterday relieved fears that the world’s largest economy may be heading towards a downturn. A recession in the US could precipitate a global contraction, so investors around the world were cheered by the upbeat US data.
Rising iron ore prices may also be lifting the commodity-linked Australian Dollar. Iron is one of the key exports for Australia’s trade-based economy, so rising prices tend to boost the ‘Aussie’.
GBP/AUD Exchange Rate Forecast: Sterling to Continue to Slip?
As today’s session unfolds, GBP/AUD may be susceptible to further losses as markets digest the UK’s dire retail sales data.
Any domestic news from the UK highlighting the trouble facing the country’s economy, such as headlines about escalating industrial action, could add to downward pressure on the Pound.
Meanwhile, risk appetite will also likely impact the currency pairing. If the market mood remains upbeat, the riskier ‘Aussie’ may continue to make gains against Sterling.
Next week looks set for some volatility early on, with the latest flash PMI reports due out. We could see big moves in GBP/AUD on Tuesday following the release of the impactful surveys.