Pound Australian Dollar Exchange Rate Softens as Economic Fears Return
(Updated 17:00, 10/2/23) The Pound Australian Dollar (GBP/AUD) exchange rate lost steam throughout the day after the initial optimism of avoiding a recession faded. In its place, concerns over the fragile state of the UK economy sapped demand. Despite avoiding a technical recession, the UK remains the only G7 economy to recover its post-Covid losses.
At the time of writing, the GBP/AUD exchange rate is trading around $1.7432, a 0.29% fall from this morning’s opening levels.
Original article continues below:
Pound Australian Dollar Exchange Rate Fluctuates as UK Narrowly Avoids Recession
The Pound Australian Dollar (GBP/AUD) exchange rate is under pressure this morning as the UK economy stagnated in the fourth quarter of 2022.
At time of writing the GBP/AUD exchange rate is trading around $1.7554, relatively unchanged from this morning’s opening levels.
Pound (GBP) Modestly Supported after Dodging a Recession
The Pound is trading in choppy conditions this morning as GDP growth data confirmed the economy stagnated in Q4. Meeting market expectations, the data also confirmed that the economy avoided a recession.
The Office for National Statistics (ONS) published data this morning revealing that the UK economy stagnated in the fourth quarter, narrowly dodging a technical recession. Monthly growth figures showed the economy contracted by 0.5%, the first decline in three months. Missing expectations of a 0.3% slide, the services sector saw a 0.8% fall. Darren Morgan, Director of Economic Statistics at ONS, commented:
‘In December public services were hit by fewer operations and GP visits, partly due to the impact of strikes, as well as notably lower school attendance. Meanwhile, the break in Premier League football for the World Cup and postal strikes also caused a slowdown.’
However, despite the relief of avoiding a recession, the UK economy is not ‘out of the woods yet’, according to both Chancellor Jeremy Hunt and the Resolution Foundation. James Smith, Research Director at the Resolution Foundation, said that households will still be under immense pressure this year, adding:
‘The longer-term picture is more worrying, with the UK economy yet to return to its pre-pandemic size having suffered a prolonged period of weak growth since the financial crisis.’
Australian Dollar (AUD) Muted Despite Hawkish RBA Statement
Meanwhile, the Australian Dollar is struggling to capitalise on the hawkish statement from the Reserve Bank of Australia (RBA). The RBA’s statement on monetary policy hinted at further rate hikes but failed to buoy AUD investors.
Economists at TD Securities expect the RBA to continue their hiking cycle, lending some modest support to the ‘Aussie’. They added:
‘There are no significant surprises in the RBA’s fresh set of forecasts. Inflation and Wage forecasts were revised up with little to no change in GDP and unemployment projections.
‘The Bank is mindful of the lags in monetary policy but is acutely aware of the upside risks to wages/inflation. We expect the RBA to hike next month, pause in April and hike in May.’
Pound Australian Dollar Forecast: BoE Speech to Bolster the Pound?
Looking ahead, the Pound Australian Dollar exchange rate could see further movement with a speech from BoE Chief Economist Huw Pill. With modest relief from the UK economy avoiding a recession, Pill could comment further on how the central bank intends to bring inflation down. A hawkish tone could boost Sterling.
Meanwhile, the risk-sensitive ‘Aussie’ will be left open to market sentiment amid a lack of data to close the week. An improving market mood could see AUD tick higher, but mixed Chinese inflation data could limit gains.