Pound Australian Dollar (GBP/AUD) Exchange Rate Falls as Possibility of Fed-BoE Divergence Grows
(Updated 16:43 14/03/23)
The Pound Australian Dollar (GBP/AUD) exchange rate is slipping this afternoon. The poor wage growth figures for the UK may be continuing to dent confidence in the pairing.
A consistently upbeat market mood could also be prompting losses in GBP/AUD. Additionally, upbeat iron ore prices may be weighing on the exchange rate.
The latest US inflation data could be adding to the pairing’s downturn amid the possibility of a divergence in policy between the US Federal Reserve and the Bank of England (BoE). US core inflation ticked higher in February, prompting renewed bets on further interest rate hikes from the Fed.
At time of writing the GBP/AUD exchange rate is at around AU$1.8235, which is down roughly 0.3% from this morning’s opening figures.
Original article continues below:
Pound Australian Dollar (GBP/AUD) Exchange Rate Trades Sideways after Disappointing UK Jobs Data
The Pound Australian Dollar exchange rate is trading in a narrow range today. A risk-on mood may be weighing on the pairing, as well as a drop in UK wage growth.
GBP/AUD may see losses limited by poor Australian consumer and business confidence figures, however.
At time of writing the GBP/AUD exchange rate is at around AU$1.8267, virtually unchanged from this morning’s opening figures.
Pound (GBP) Trends Lower after Poor Wage Growth Figures
The Pound (GBP) is edging lower today after downbeat employment data today. A pullback in Bank of England (BoE) rate hike bets may also be keeping pressure on Sterling.
The latest wage growth figures released today indicated a drop in average earnings including bonuses for the three months leading to January. Wage growth slipped to 5.7% from 6% at the previous reading.
The data is likely causing markets to further reprice their expectations of further rate hikes from the BoE. Interest rate future are currently pricing the chance of a pause from the central bank at 40%. This may be pulling the Pound lower today.
On the other hand, January’s unemployment rate remained unchanged at a low of 3.7%. Evidence of persistent tightness in the UK’s labour market may be underpinning GBP and keeping BoE bets buoyed.
James Smith, developed markets economist at ING, said:
‘So while for now we’re inclined to stick with our previous base case of a 25bp hike at next week’s meeting, the chances of ‘no change’ have undoubtedly risen. Much, unsurprisingly, depends on the fallout of the SVB collapse over the coming days.’
Australian Dollar (AUD) Gains amid Risk-On Mood
The risk-sensitive Australian Dollar (AUD) is firming today. A return of risk appetite is lending support to the ‘Aussie’ as markets continue to pare back bets on US Federal Reserve rate hikes.
Gains for AUD are likely being capped by poor consumer and business confidence data, however. Consumer sentiment was unchanged at 78.5 in March which was close to previously historic low readings.
Speaking on the data, Westpac chief economist Bill Evans:
‘Index reads below 80 are rare, back-to-back reads even rarer. Both the COVID shock and the Global Financial Crisis saw only one month of sentiment at these levels.’
A negative business confidence may also be weighing on the ‘Aussie’ today. February’s reading fell to -4 from 6 in January.
GBP/AUD Exchange Rate Forecast: Will UK Budget Help to Restore Confidence in GBP?
Looking to the week ahead for the Pound, the unveiling of the UK government’s spring budget on Wednesday could prompt movement in the currency. UK Chancellor Jeremy Hunt is expected to unveil additional energy bill support for households and corporate tax increases.
Any shifts in BoE rate hike bets could also affect Sterling over the course of this week. Following the collapse of SVB, global interest rate bets have cooled.
For the Australian Dollar, unemployment figures on Thursday could push the ‘Aussie’ higher if they print as forecast. February’s unemployment is set to tick lower to 3.6% which could see increased bets on further interest rate hikes.
On the other hand, the RBA’s latest bulletin could cap any potential gains for AUD. The central bank has previously signalled that they are close to a pause in policy tightening.
Finally for AUD, the data releases from China could boost the Australian Dollar on Wednesday. The latest output figures for the industrial and retail sectors are expected to climb. The data could bolster confidence in China’s industrial recovery.