Pound Australian Dollar (GBP/AUD) Exchange Rate Extends Upside amid UK Hopes and Souring Sentiment

Pound Australian Dollar (GBP/AUD) Exchange Rate Strengthens Further as Market Mood Sours

(Updated 16:35, 8/2/23) The Pound Australian Dollar (GBP/AUD) exchange rate has continued to climb today, posting impressive gains, as a shift in market mood weighs on the risk-sensitive Australian Dollar (AUD).

Pound Sterling (GBP) had enjoyed initial success this morning following a report from the National Institute for Economic and Social Research (NIESR). The thinktank said it now believes the UK is ‘likely to avoid’ a recession this year, thereby cheering GBP investors.

GBP/AUD extended its gains later on as a souring market mood dented the riskier ‘Aussie’. Two policymakers from the Federal Reserve voiced their support for further interest rate rises. This spooked markets as higher US borrowing costs could stifle global economic growth.

At the time of writing, the GBP/AUD exchange rate is trading at AU$1.7421, having gained more than 0.6% since this morning’s opening levels.

Original article continues below:

Pound Australian Dollar (GBP/AUD) Exchange Rate Rises amid More Hopeful UK Economic Outlook

The Pound Australian Dollar (GBP/AUD) exchange rate is edging higher today following a new report suggesting that the UK economy may avoid a recession in 2023.

At the time of writing, GBP/AUD is up marginally at AU$1.7329, having risen from an earlier low of AU$1.7268.

Pound (GBP) Firms as Recession Fears Ease

The Pound (GBP) is ticking higher today, although gains against the Australian Dollar (AUD) look limited, amid hopes that the UK may be able to avoid a recession this year.

In its latest economic outlook publication, the National Institute of Economic and Social Research (NIESR) said that the UK is ‘likely to avoid a ‘technical recession’ in 2023.’ These hopes have given Sterling a small lift.

However, the report goes on to say that, although the UK could avoid a technical recession, ‘it will certainly feel like a recession for many.’ The NIESR believes GDP will remain close to zero and personal disposable income will contract, with middle-income households seeing a £4,000 hit this financial year.

Australian Dollar (AUD) Buoyed by Risk-On Mood

Meanwhile, the Australian Dollar is resisting steeper losses against the Pound today amid an upbeat market mood and optimism over China’s reopening.

On Tuesday, China’s President Xi Jinping said that the country will strive to improve its economy, raising hopes of growth-boosting measures from the government. This added to a generally upbeat mood over China’s easing of Covid restrictions, which analysts say will prompt economic growth.

Due to the close trading relationship between Beijing and Canberra, the Australian Dollar often trades as a proxy for the Chinese economy. This optimistic outlook therefore lent AUD some support.

In addition, a bullish mood in markets is keeping the risk-sensitive ‘Aussie’ afloat today. As a result, GBP/AUD is finding its gains limited.

GBP/AUD Exchange Rate Forecast: Risk Appetite to Drive the Pairing?

During today’s session, risk appetite could be the defining factor for the Pound Australian Dollar exchange rate.

Two speeches from Federal Reserve policymakers in the afternoon could alter the market mood, as US monetary policy can impact the global economy. If the Fed officials sound hawkish, advocating further interest rate rises, then the market mood could sour. Such an event would likely weigh more on the riskier ‘Aussie’, thereby supporting GBP/AUD.

In the meantime, Sterling could be influenced by domestic headlines. If attention turns to downbeat news stories about the UK economy, such as strike action among public sector workers or the cost-of-living crisis, then GBP could weaken.

Samuel Birnie

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