The Pound Australian Dollar (GBP/AUD) exchange rate wavered throughout the week as inflation in the UK eased to 10.1%.
What’s Been Happening: GBP/AUD Exchange Rate Fluctuated amid Pared Rate Hike Bets
The Pound (GBP) opened last week with modest strength as the latest employment data highlighted a tight labour market. Unemployment rate remained unchanged, but wages excluding bonuses leapt by 6.7%, the fastest jump on record.
Sterling then fell after UK inflation softened more than expected and printed at 10.1% in January. Despite remaining in double digits, investors were spooked over fears that the Bank of England (BoE) could slow their tightening cycle.
At the end of the week Sterling was supported by an unexpected jump in retail sales. Against an expected 0.3% slump, sales leapt by 0.5%
Meanwhile, the Australian Dollar also struggled to find a clear direction in the week as underwhelming data was countered with a continuously hawkish Reserve Bank of Australia (RBA).
In mid-week trade RBA Governor Philip Lowe tried to inspire some confidence in AUD investors. Observing that inflation remains far too high, Lowe insisted that the central bank will do more to bring it down.
However, January’s employment data soured moods later in the week as unemployment ticked higher and participation levels fell. Australia’s economy lost 11,500 jobs in January whilst unemployment climbed to 3.7%.
Three Things to Watch Out for This Week
- Flash PMIs
Both the UK and Australia will see the release of January’s preliminary PMIs this week. A contraction of manufacturing and services sector growth in both countries could weigh on their respective currencies.
- RBA Meeting Minutes
AUD investors could look towards the minutes from the last policy meeting for clues to how the RBA plans to continue fighting inflation. A hawkish outlook could buoy AUD.
- Northern Ireland Protocol deal
With fears that a deal might not be struck this week, the ongoing uncertainty, and the threat of a trade war between the UK and the EU could sap GBP demand.
Pound Australian Dollar Forecast
Elsewhere, global market sentiment could continue to weigh on the risk-sensitive ‘Aussie’. Despite mild gains from China’s reopening, mounting US-Sino tensions could sour moods, and in turn, the Australian Dollar.