Pound Australian Dollar (GBP/AUD) Surges as UK Inflation Remains Near Highest Level in 40 Years
The Pound Australian Dollar (GBP/AUD) exchange rate is strengthening this morning as inflation softened faster than expected to 10.1%. Despite a third consecutive fall, headline CPI remained amongst the highest levels in 40 years.
At time of writing, the GBP/AUD exchange rate is around $1.7511, a 0.52% jump from this morning’s opening levels.
Pound (GBP) Spurred by Increased Interest Rate Bets
The Pound (GBP) is experiencing mixed success this morning as inflation softened beyond market expectations. Against a predicted modest easing of 10.3%, headline CPI dropped to 10.1%.
The Office for National Statistics (ONS) confirmed that inflation had continued its decline, a third consecutive month, to the lowest level since September last year. The biggest downward contribution came from fuel prices as they continued to plummet. Compared to December, CPI fell 0.6%, the first decline in over 12 months and the biggest single drop since January 2019.
Core CPI, which excludes volatile prices such as food and energy, eased to 5.8% YoY, widely missing an expected 6.2%. With price pressures easing much faster than anticipated, Sterling could come under pressure as the Bank of England (BoE) weighs up their options on monetary policy. Following mixed labour market data, the central bank has stated that further rate hikes are data dependent.
Australian Dollar (AUD) Souring Despite Hawkish RBA Speech
Meanwhile, the Australian Dollar (AUD) is under heavy selling pressure this morning despite a hawkish speech from Reserve Bank of Australia (RBA) Governor Philip Lowe.
In a particularly hawkish speech, Lowe stated that inflation remains way too high and that the central bank needs to do more to bring inflation down. Lowe added that the RBA is trying to avoid a recession and is following a narrow path to a softer landing:
‘But there is a risk on the other side. There is a risk that we have not yet done enough with interest rates and spending is more resilient and that inflation stays high.’
Meanwhile, weighing on market sentiment, and in turn the risk-sensitive ‘Aussie’, is a maintained hawkish stance from the Federal Reserve. Several Fed policymakers warned that the central bank had not finished with interest rate hikes and are likely to rise further. With optimism fading of the Fed finally pausing their rate hike cycle, sentiment is souring.
Pound Australian Dollar Exchange Rate Forecast: Employment Data to Boost the Aussie?
Looking ahead, the Pound Australian Dollar exchange rate could see further movement with the release of labour market data for Australia tomorrow. With unemployment expected to remain near five-decade lows, and a significant increase in employment, the ‘Aussie’ could be boosted by a strengthening labour market.
Meanwhile, Sterling could see further fluctuations as the market continues to digest the latest inflation reading. A speech from BoE Chief Economist Huw Pill tomorrow could inspire movement. The central bank will be looking at how the latest surprise CPI reading could influence their monetary guidance going forward.